Schulte Roth & Zabel partners Allison Scher Bernbach and Peter Naismith recently discussed the SEC’s sweeping private fund rules with Private Funds CFO for their article, “Fifth Circuit decision looms large over private funds’ future.”  

Private fund managers are awaiting a pivotal federal appeals decision that could reshape their industry’s regulatory landscape. Industry groups quickly sued to block the SEC’s new private fund rules in the Fifth Circuit Court of Appeals, which is known for its skepticism towards government regulation. The Court’s ruling could have wide implications for not only the private fund rules, but also future rules, especially if the courts side with the industry on Dodd-Frank. 

Regardless of the ruling, there will not be a lot of time for regulators and the industry to adjust. One of the most onerous requirements in the rules requires SEC-registered private fund managers to produce and circulate quarterly reports on fund fees and expenses and performance, with the first reports due in May 2025. Instead of waiting for a decision from the courts, Peter urged private fund managers to begin working to understand and build the forms and systems necessary to meet these requirements. “There’s a segment of the community that’s waiting for the courts, but they’re going to be left scrambling if the rule survives,” said Peter. “It’s probably better to prepare, sooner rather than later. There’s a lot of work in producing these reports.” 

As the core constituency of the new rules, LPs seem to favor the requirement for more uniform quarterly reporting. “In conversations I have had with institutional LPs, they do seem to be in favor of getting this level of reporting on a uniform and consistent basis,” Allison explained. “Compared to the investment-level net performance that is now required under the marketing rule, this seems to have more utility.” 

Read the article (subscription required).