On February 10, 2022, the SEC proposed dramatic new rules under the Advisers Act that would significantly impact private fund advisers’ disclosure and reporting obligations as well as, in a momentous change in the SEC’s approach to private funds, prohibit certain commercially negotiated features.
The SEC also proposed amendments to reporting and compliance requirements for all registered advisers relating to cybersecurity incidents. Notably, the PE Proposal would prohibit all advisers to private funds from charging certain fees and expenses to private fund clients or portfolio investments, calculating adviser clawback obligations on after-tax basis or seeking indemnification or otherwise limiting liability for breaches of fiduciary duty, willful misfeasance, bad faith, recklessness or even negligence. The PE Proposal strikes at side letters and similar commercially negotiated preferential agreements with investors, banning certain provisions and requiring disclosure of all others.
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