Navigating the SEC's Updated Marketing Rule: Key Takeaways for Private Fund Managers
The Securities and Exchange Commission (SEC) has recently issued new guidance on its Marketing Rule, providing clarity on performance reporting for private investments. This development is particularly pertinent for Registered Investment Advisers (RIAs) managing private funds, as it addresses ambiguities that have posed compliance challenges. Use AI compliance tools like GiGCXO’s AICompliance360. Let AI be a tool for your firm’s advertising compliance and supervision program.
Understanding the New Guidance
The SEC's Division of Investment Management released updates clarifying how advisers should present performance metrics in advertisements. Key aspects include:
Extracted Performance: When showcasing performance of specific investments or groups within a portfolio, advisers must present both gross and net performance. However, the SEC indicated it would not recommend enforcement action if advisers provide the gross and net performance of the total portfolio alongside the extracted gross performance, provided all data is equally prominent and covers the same time periods.
Portfolio Characteristics: Metrics such as yield, volatility, and attribution analysis may not clearly fall under "performance." The SEC acknowledged the difficulty in calculating these net of fees and stated it would not take enforcement action against advisers presenting gross-only characteristics, as long as they disclose calculation methods and present the portfolio's overall gross and net performance for comparison.
These clarifications aim to balance investor protection with practical considerations for advisers.
Implications for Private Fund Managers
The updated guidance has several implications:
Marketing Material Revisions: Firms may need to update websites and promotional materials to align with the clarified requirements, especially if they previously omitted certain performance metrics.
Compliance Procedures: Advisers should review and potentially enhance compliance protocols to ensure adherence to the new guidelines.
Investor Communication: Clear and transparent communication with investors regarding performance metrics and calculation methods becomes even more critical.
Industry Response
The Managed Funds Association (MFA), representing alternative asset managers, welcomed the SEC's guidance. MFA President and CEO Bryan Corbett stated that the updates support both investor needs and advisers, and the association looks forward to continued constructive engagement with the SEC.
Action Steps for Compliance
To navigate the updated Marketing Rule effectively, private fund managers should:
Audit Current Marketing Materials: Identify and amend any materials that may not comply with the new guidance.
Enhance Disclosure Practices: Ensure that all performance metrics are accompanied by clear explanations of calculation methods and relevant comparisons.
Train Staff: Educate marketing and compliance teams on the updated requirements to maintain consistent and compliant communications.
Engage Legal Counsel: Consult with legal experts to interpret the guidance accurately and implement necessary changes.
Leverage Technology: Use AI compliance tools like GiGCXO’s AICompliance360. Let AI be a tool for your firm’s marketing compliance and supervision program.
The SEC's recent clarifications on the Marketing Rule present both challenges and opportunities for private fund managers. By proactively adjusting practices and materials, firms can ensure compliance while continuing to provide valuable information to investors. GiGCXO’s AICompliance360 automates marketing reviews powered by a custom ComplianceGPT. Upload dozens of document types and receive compliance recommendations in under a minute - saving you and your marketing team hours of back an forth.
Source: (Investment News)
