Schulte Roth & Zabel partner Kelly Koscuiszka spoke with Regulatory Compliance Watch on the trending use of early artificial intelligence by investment advisers. In her conversation with publisher Carl Ayers, she explains the impact of SEC regulations in the AI space, predicts the future implementation of AI within markets and guides firms on effective practices for proactive AI compliance.

Watch the full interview here.

Schulte Roth & Zabel partner Allison Scher Bernbach recently spoke to Bill Myers for his Private Funds CFO article, “Did the SEC just double down on accelerated fees and indemnities?”

Despite appearing in the original 2022 proposal, a prohibition on fees for unperformed services and an indemnification prohibition did not appear in the SEC’s new Private Fund Advisers Rules.

The SEC explained, “In a change from the proposal, we are not adopting the prohibition on fees for unperformed services because we believe this activity generally already runs contrary to an adviser’s obligations to its clients under the federal fiduciary duty. We are also not adopting the indemnification prohibition that we proposed because much of the activity that it would have prohibited is already prohibited by the federal fiduciary duty and antifraud provisions.”

Allison stated, “In explaining why they abandoned the accelerated fees in the final rule, the SEC said that engaging in these activities may be a breach of fiduciary duty. The question still open is whether disclosure is enough to cure that breach, or whether reimbursing fees for services that you don’t end up providing is enough to cure a deficiency.”

Read the article.

Schulte Roth & Zabel partners Allison Scher Bernbach, Jennifer Dunn, Kelly Koscuiszka and Tony Taylor were quoted in Lydia Tomkiw’s recent FundFire article, “Hedge Funds Zero In on Side Letters, Preferential Treatment with SEC Private Funds Rule,” discussing the SEC’s new Private Fund Adviser Rules.

The Schulte team explained how the rules — the most sweeping revisions to private fund regulations since the 2010 Dodd-Frank Act — will impact funds, affecting preferential treatment disclosures and side letters, and introducing new requirements, including quarterly reporting, among other things.

Schulte Roth & Zabel partner Craig Stein recently spoke to Kristen Haunss from Refinitiv Loan Connector for her article, “CLOs Exempt From SEC Private Fund Rules.”

The additional oversight from the SEC for private fund advisers is unnecessary for CLOs as they are already highly negotiated and provide important information to investors in trustee reports.

“A number of the original proposals, quite honestly, were just extremely burdensome for the CLO market and in many ways unnecessary. I think that is exactly the reason why the SEC exempted CLOs,” Craig commented.

He continued, “The information that they are asking private funds to distribute to investors is not really material to CLO investors, and CLO investors get a lot of information that is relevant to them that is very different from private funds.”

Read the article (subscription required).

Schulte Roth & Zabel partner Peter Greene recently spoke to Michael Thrasher from Institutional Investor for his article, “Who Benefits When the SEC Spills Everyone’s Side-Letter Secrets?” 

Discussing a provision in the SEC’s new Private Fund Advisers Rules, Peter explained that the requirement to offer the same terms to all investors could result in less attractive terms overall, which could in turn cause institutions to invest less in funds.

According to Peter, having smaller investors will impact the stability and flexibility of some private funds, while offering better terms to all investors will increase costs, create a bigger barrier to entry for new funds, and further limit investors’ choices.

“The rule has potential to harm large investors, smaller investors, and managers,” he stated.

Read the article.

In an article for Law360 titled “Key Takeaways From Agencies’ Tri-Seal Compliance Note,” Schulte of counsel Betty Santangelo and partners John Nowak and Melissa Goldstein, with contributions from special counsel Hannah Thibideau and associate Gregoire Devaney, examine a recent tri-seal compliance note.

On July 26, the US Department of the Treasury’s Office of Foreign Assets Control, the US Department of Justice and the US Department of Commerce published a tri-seal compliance note that encourages private sector firms to self-disclose potential violations of sanctions, export controls, and other national security laws.