Navigating the SEC's Updated Marketing Rule: Key Takeaways for Private Fund Managers
The Securities and Exchange Commission has issued new guidance on its Marketing Rule, offering long awaited clarity on performance reporting for private investments. The move is particularly significant for registered investment advisers that manage private funds, since the lack of precision in earlier rules had created uncertainty and compliance challenges. The Division of Investment Management outlined how advisers should present performance metrics in advertisements, giving the industry a clearer path forward.
One area of focus is extracted performance. When showcasing the results of individual investments or groups within a portfolio, advisers are required to present both gross and net performance. The SEC has said, however, that it will not recommend enforcement action if advisers present the gross and net performance of the entire portfolio alongside extracted gross performance, so long as the data is equally prominent and covers the same time periods.
Another area is portfolio characteristics such as yield, volatility, or attribution analysis. These metrics may not clearly qualify as performance under the rule, and calculating them net of fees has proven difficult. The SEC acknowledged this challenge and indicated that it would not pursue enforcement against advisers presenting these metrics on a gross-only basis, provided that calculation methods are disclosed and that the overall portfolio’s gross and net performance are included for comparison.
The clarifications are intended to strike a balance between protecting investors and recognizing the practical realities advisers face. For private fund managers, the implications are immediate. Websites, investor decks, and promotional materials may require updates to reflect the new requirements. Compliance teams will need to revisit protocols to ensure alignment with the guidance. Investor communication will also need to emphasize transparency in how performance is calculated and presented.
The industry has reacted positively. The Managed Funds Association, which represents alternative asset managers, welcomed the development. Its president and chief executive, Bryan Corbett, said the updates serve both investor needs and adviser realities, adding that the association looks forward to continued engagement with the SEC.
For firms, the path ahead is clear. They must audit existing marketing materials to identify potential compliance gaps, strengthen disclosure practices to provide clear explanations of calculation methods, and train staff to understand and apply the new requirements consistently. Many are also being advised to engage legal counsel for a precise interpretation of the guidance.
Technology is playing an increasing role in meeting these demands. AI-driven compliance tools such as GiGCXO’s AICompliance360 allow firms to automate the review of marketing materials. By leveraging a purpose built ComplianceGPT engine, the platform can process dozens of document types and return compliance recommendations in under a minute, reducing the back and forth that often bogs down compliance and marketing teams.
The SEC’s clarifications may raise the bar for advisers, but they also present an opportunity. Firms that adapt quickly will not only demonstrate compliance but also reassure investors with transparent and consistent reporting. In a market where credibility is paramount, tools like AICompliance360 can help ensure that regulatory expectations are met without slowing down the pace of business.
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)
