March 2, 2022
The IAA has joined more than a dozen other financial services trade associations in a letter requesting that the SEC extend the extremely short 30-day comment periods for the two recent proposals involving private fund advisers. The group has asked for a more conventional 120 days after Federal Register publication for the controversial private fund advisers proposal and an extension of 60 days for the Form PF proposal. Currently, the Form PF proposal deadline is March 21, 2022, and the private fund adviser proposal deadline is April 25, 2022.
As discussed in IAA Today, the private fund advisers proposal represents a potential sea change in the operations and regulation of private fund advisers and of private funds themselves. The five most significant elements of this proposal are: (i) quarterly fund reporting of fees and performance; (ii) annual fund audits; (iii) fairness opinions for adviser-led secondary transactions; (iv) prohibited activities, such as charging certain fees and expenses, limitations of liability of advisers, borrowing from a private fund client, or offering certain preferential treatment to investors related to redemption and portfolio information; and (v) disclosure for other preferential treatment. The Form PF proposal, also discussed in IAA Today, includes new one-day “current” reporting to the SEC of certain events for all private equity funds and large hedge funds and a lower threshold and more detailed data required for annual large private equity fund reporting.
The extension request letter notes that the private fund proposal “proposes complex and sweeping changes to the regulation of private funds that will impact a broad range of stakeholders” and “seeks open-ended and extensive information from stakeholders and the public (quantitative and qualitative) regarding all of the proposals, posing more than 800 individual questions as well as more than 60 specific questions regarding the cost-benefit analysis alone.” The letter notes that despite the complexity and significance of the private fund proposal as well as the substantial amount of information the SEC seeks from stakeholders and the public, the current schedule of both proposals “is simply too short for us and our members to analyze appropriately the [proposals], understand their full scope and implications, and collect, analyze, and present the detailed information and comments that the Commission seeks from stakeholders and the public.”
The letter emphasizes that these proposals are only two of several rule proposals that the SEC has approved in recent weeks with 30-day comment periods, including consequential proposals that involve cybersecurity risk management, beneficial ownership reporting, shortening the securities transaction settlement cycle, and short selling reporting. Each of these proposals requires stakeholders to devote sufficient resources to collect and analyze data, assess the potential business, operational, and regulatory implications, and develop comprehensive responses for the SEC’s rulemaking record. As we recently discussed in an Investment News op-ed, these comment periods are simply not adequate for meaningful input. We are hopeful that the SEC will recognize the importance of thoughtful stakeholder engagement and provide more realistic comment periods.
The letter is available on the IAA website. See Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews (Feb. 9, 2022); Amendments to Form PF to Require Current Reporting and Amend Reporting Requirements for Large Private Equity Advisers and Large Liquidity Fund Advisers (Jan. 26, 2022).
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