Reflections on the Demise of the SEC’s Private Fund Adviser Rule – LP and GP Perspectives

In this episode, Nossaman's Yuliya Oryol and guests Chris Hayes & Jason Mulvihill provide LP and GP perspectives on the SEC’s Private Fund Adviser Rule. Both speakers were deeply involved with the proposed Rule – one worked with ILPA on behalf of the LP community to lobby the SEC to adopt the Rule in order to help institutional investors in their negotiations with GPs while the other worked with the AIC on behalf of the GP community and was instrumental in expressing GP objections and opposition to the Rule and developing the successful litigation to challenge to the Rule.

After extensive advocacy by the Institutional Limited Partners Association (ILPA) and others on behalf of the Limited Partner (LP) community in support of stronger regulation of private funds, the Securities and Exchange Commission (SEC) adopted the Private Fund Adviser Rule (Rule) on August 23, 2023. The Rule consisted of five new rules: the Private Fund Audit Rule, the Quarterly Statements Rule, the Restricted Activities Rule, the Adviser-Led Secondaries Rule, and the Preferential Treatment Rule, plus two rule amendments addressing annual compliance documentation and retentions of books and records. However, on June 5, 2024, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit unanimously vacated the Rule. The Fifth Circuit held that the SEC exceeded its statutory rulemaking authority under the Investment Advisers Act of 1940 in adopting the Rule. The SEC could have asked for a rehearing en banc in the Fifth Circuit or it could have appealed the decision to the U.S. Supreme Court. Instead, the SEC determined not to do anything further to ensure survival of the Rule. As a result, the Rule is dead – at least for now and the foreseeable future.