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.

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Schulte Roth & Zabel partner Peter Greene spoke with Matthew Bultman from Bloomberg Law for his article “Private Funds Exhale Over SEC Rule Despite Big Compliance Costs,” discussing the recently adopted regulations aimed at increasing transparency in the private fund industry. While the final iteration of the rule permits various fund activities that would have been prohibited under the initial proposal, there are concerns that the rule will increase costs and decrease competition. Peter stated there are problems with the rule, “just not as many as there could’ve been.”

The SEC also added a legacy (grandfathering) provision that allows existing side letters with preferential treatment terms to remain undisturbed. Peter stated that disturbing prior side letters would have been a “practical morass.”

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Schulte Roth & Zabel co-managing partner Marc Elovitz recently discussed the SEC’s new Private Fund Advisers Rules with Patrick Smith for his article in The American Lawyer, “They Didn’t Blow Up the World’: Big Law Reacts to New SEC Fund Rules.”

The new rules require private funds to issue quarterly fee and performance reports, disclose certain fee structures and perform annual audits, though certain provisions from the original 2022 proposal were altered or were cut altogether.

Marc commented that the new rules “didn’t blow up the world, but it is impactful. It is going to be a significant change in private funds regulations.”

He continued, “It increases the regulatory burden in the funds space. It is a whole new set of requirements, and it is more work for regulatory lawyers.”

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Schulte Roth & Zabel partners Christopher Avellaneda and Kelly Koscuiszka recently spoke to Tom Stabile and Lydia Tomkiw for their FundFire article, “SEC Adopts Sweeping Final Private Fund Disclosure Rule,” where they discussed the SEC’s adoption of the most sweeping revisions to private fund regulations since the 2010 Dodd-Frank Act.

According to Chris, there is still a lot to digest and understand about the rules, but “[o]ur first take is this is going to be a significant and far-reaching rule that will impact how fund managers interact with their investors and clients.”

Noting the provisions from the original 2022 proposal that were cut or altered, Kelly said, “You are hearing some relief because there were changes. But we shouldn’t lose sight of how significant the changes will be.”

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Schulte Roth & Zabel partner Kelly Koscuiszka was quoted in a Reuters article, “US SEC overhauls rules for $20 trillion private fund industry,” by Carolina Mandl and Chris Prentice, where she discussed new rules from the SEC that mark a sweeping overhaul for the private funds industry.

The new rules require private funds to issue quarterly fee and performance reports, disclose certain fee structures and perform annual audits.

Though the original proposal featured additional requirements, Kelly commented that “[t]his is still a sweeping series of rules for private fund managers that will have significant effects.”

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Schulte Roth & Zabel co-managing partner Marc Elovitz was quoted in a Financial Times article by Brooke Masters and Stefania Palma, discussing the SEC’s proposed private funds rule, which would be one of the most sweeping regulatory reforms on private equity, real estate and hedge funds in history.

The proposed rules would require detailed quarterly reporting on performance, prohibit side deals that give different terms to some investors and limit what expenses private managers can pass on to their clients, among other changes.

If the rules are passed, many contracts with investors would have to be renegotiated, despite being decades old.

Marc noted that the overseas fund industry would be affected as well, saying “Many London-based fund managers who have US investors are going to be subject to these rigid US rules. It could cut US investors off from a lot of these funds.”

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Schulte Roth & Zabel partner Melissa Goldstein recently spoke with Adrianne Appel for her Compliance Week article, “Companies get say on Biden executive order restricting China tech investments.”

Melissa discussed President Joe Biden’s recent executive order to restrict certain outbound investments to China and how it differs from the administration’s sanctions against Russia. “Unlike what we saw with sanctions against Russia, here it seems the Treasury and the White House are taking the input of the public on how to shape this program,” she said.

There are still many aspects of the rules that have to be worked out, including how indirect and direct revenues are defined for complex entities, Melissa added.

Melissa also commented that it is critical for entities to prepare for eventual rulemakings by conducting an assessment of the nature and extent of their investments in China.

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Schulte Roth & Zabel partners Daniel Oshinsky and Craig Stein recently spoke to Tom Lemmon of Global Capital Securitization to discuss US CLO market conditions.

Craig commented that he was “cautiously optimistic” about prospects of a good end for 2023, in part due to the return of refinancings and resets. With more seasoned collateral, refinanced deals can revert to the more traditional two-year non-call and five-year reinvestment period and thus price tighter, he said.

Dan said that mergers and acquisitions could also help to fire up the US CLO primary market, saying “M&A has been slower [this year], but we often hear of the private equity funds that have been sitting on capital and they need to deploy that capital at some point.”

Craig added that smaller managers who have yet to print this year will likely come to market also, even if conditions are not ideal, while warehousing terms may also force managers’ hands. “If you’re not a tier one manager, and you haven’t gotten a deal done in a year, you don’t want to be asked if you did a deal in 2023 and for the answer to be no,” he said. “Some people might do deals, even though the economics aren’t as good as they would normally want.”

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Schulte Roth & Zabel partner Melissa Goldstein spoke with The Wall Street Journal reporter Chris Cumming for his article, “Biden’s China Order Raises Tough Questions for Private Equity.” 

Melissa offered commentary on the Biden administration’s plan to restrict certain private-equity and venture-capital investments in China with an executive order that requires Treasury to implement a program to prevent capital flows to certain high-technology areas and require disclosure of non-prohibited investments involving sensitive industries in China. 

Noting that the final proposal’s shape remains to be seen, Melissa identified that, “Many of the definitions are ambiguous and it is unclear how much of an impact the rule making will have. Right now, companies should be doing a tighter risk assessment to see what their exposure is.” 

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