SEC Chairman Continues Focus on Private Fund Disclosure

Securities and Exchange Commission (“SEC”) Chair Gary Gensler continues to focus public statements on adopting new disclosure requirements for private funds. In prepared testimony before the United States Senate Committee on Banking, Housing, and Urban Affairs on September 14, Gensler highlighted SEC and staff efforts to “reform” disclosure requirements applicable to private funds, stating “I believe we can enhance disclosures [of conflicts of interest and fees], better enabling [investors] to get the information they need to make investment decisions.” Two weeks later, in prepared remarks before the Future of Asset Management North America Conference on September 29, Gensler remarked that he had asked the SEC staff for recommendations for consideration of enhanced reporting and disclosure through Form PF or other reforms.

Currently, advisers to private funds are required to provide information about funds, and relevant conflicts of interest and fees, in their Form ADV filings, while private funds are required to provide certain information to the SEC in Form PF and Form D about the funds themselves but not with respect to conflicts and fees. The SEC included potential amendments to Form PF and Regulation D under the Securities Act of 1933 (the “Securities Act”) in its Spring 2021 regulatory agenda but otherwise did not specifically identify private fund disclosure as a formal agenda item. It is unclear whether “reforms” to private fund disclosure will be included in such amendments (Form PF and Form D are not investor-facing disclosure documents) or will be a part of other formal SEC efforts.

New Proxy Proposal

The SEC proposed new Rule 14Ad-1 under the Securities Exchange Act of 1934 (the “Exchange Act”) and amendments to Form N-PX that would require institutional investment managers subject to disclosure requirements under Section 13(f) of the Exchange Act to report annually on Form N-PX on each of their “say-on-pay” votes. The Section 13(f) disclosure requirements currently apply to U.S. and non-U.S. managers with discretion over at least $100 million of “Section 13(f) securities.” Under the new rule, these managers would also be required to annually report votes on “say-on-pay” issues on Form N-PX, the form currently used by funds registered under the Investment Company Act of 1940 (the “1940 Act”) to report proxy votes. “Say-on-pay votes,” for purposes of the proposed new rule, refers to non-binding shareholder advisory votes on executive compensation matters pursuant to Section 14A of the Exchange Act. These votes generally include three categories of votes required by Section 14A: (1) whether to approve the compensation of certain named executives; (2) the frequency of say-on-pay votes; and (3) whether to approve executive compensation in connection with a merger or acquisition.

The SEC proposed similar rule amendments in 2010 to implement certain of the Dodd-Frank Act’s “say-on-pay” provisions but the amendments were never adopted.

New SEC General Counsel

The SEC on September 28 named Dan Berkovitz as its new General Counsel. Berkovitz will leave his position as a Commissioner at the Commodity Futures Trading Commission (the “CFTC”), where he has been serving as a Democratic Commissioner since 2018. He previously served as the CFTC’s General Counsel when Gary Gensler led that agency during the Obama Administration. Berkovitz was instrumental in moving forward the CFTC’s regulatory and legislative agenda and is expected be a driving force in Gensler’s efforts to enact a sweeping package of new regulations.

AMAC Makes Final Recommendations to SEC Regarding Retail Access

On September 27, the SEC’s Asset Management Advisory Committee (the “Committee”) unanimously approved a recommendation to expand retail investor access to private investments. In its report to the SEC, the Committee noted that it “[Believes] that the SEC ought to consider wider access to private investments subject to (1) such investments providing similar to better returns than comparable public market investments; and (2) sufficient investor protection.” The Committee also made seven specific recommendations for the SEC to consider, including a call to revisit the current SEC staff moratorium on listed 1940 Act funds that invest more than 15% of their assets in private funds. Consistent with its earlier recommendations, the Committee provided the SEC with its recommended “design principles” that seek to balance investor choice with sufficient investor protection; the Committee noted that many of the design principles could be fulfilled by a 1940 Act fund product. The design principles include the following:

• Investments with some measure of liquidity;
• “Chaperoned” access through structures with SEC-registered investment advisers;
• Standardized fee, risk, term and return disclosure; and
• Diversification of private investments, either through individual positions or in a pool of diversified private assets.