Acquisitions of private fund sponsors can be accretive for large asset managers, providing access to attractive investment strategies with equally attractive margins, which can be deployed in new ways on larger platforms. For sellers, one significant attraction has been the ability to drive value through unlocking access to improved global distribution and new product sectors. 2023 may have been a surge, but even the first two months of 2024 seem like a tidal wave. Consolidation was a major theme for asset managers in 2023. Despite a volatile year for dealmaking in the private funds sector, le ..read more

On Sept. 22, 2023, the Securities and Exchange Commission (SEC) announced that American Infrastructure Funds LLC (AIM), a California-based registered investment adviser to private funds that specializes in infrastructure and real property-based investments, had agreed to pay more than $1.6 million to settle allegations involving several breaches of fiduciary duty.[1] The SEC alleged that, among other violations, AIM (i) entered into an agreement under which it accelerated a portfolio company monitoring fee without adequate disclosure, (ii) transferred an asset of an existing AIM-advised fund t ..read more

On Sept. 11, the Securities and Exchange Commission (SEC) announced charges against nine investment advisers[1] for violating Rule 206(4)-1 (Marketing Rule) of the Investment Advisers Act of 1940 (Advisers Act) due to their inclusion of hypothetical performance information on their publicly available websites without adopting and/or implementing the policies and procedures required by the Advisers Act. An analysis of the violations committed by the investment advisers and the undertakings required of the investment advisers by the SEC is set forth below in further detail. SEC concerns under th ..read more

Introduction On Aug. 23, the Securities and Exchange Commission (SEC) adopted new rules under the Investment Advisers Act of 1940 (the Advisers Act) by a 3-2 vote (Final Rules). The new rules apply to SEC-registered investment advisers and, to a more limited extent, also to unregistered investment advisers. To SEC Chairman Gary Gensler, the rules “enhanc[e] advisers’ transparency and integrity [and] will help promote greater competition and thereby efficiency” in the markets.[1] To SEC Commissioner Hester Peirce, one of the two dissenters, the rules “uproot[] the historical approach to re ..read more

Diversity in asset allocation is recognized as a key component of successful investment portfolio management. Investment diversification, if done correctly, can maximize market upside and mitigate risk. Portfolio concentration, unless conducted strategically with a strong portfolio composition, is far riskier. If diversity within portfolios is an accepted best practice, we were curious to see what the data shows about the diversity of teams managing portfolios. Women Lagging in Portfolio Leadership Positions The world of portfolio management has long been a male-dominated field. Only 14% of al ..read more

On June 8, 2023, the Division of Examinations (EXAMS) of the Securities and Exchange Commission (SEC) published a Risk Alert (the Risk Alert) setting forth additional areas of review that EXAMS will focus on in connection with amended Rule 206(4)-1 (Marketing Rule) of the Investment Advisers Act of 1940 (Advisers Act) during upcoming examinations of SEC-registered investment advisers (RIAs). These areas of review come in addition to the initial Marketing Rule focus areas that were published by EXAMS on Sept. 19, 2022. The Risk Alert encourages RIAs to reflect on their practices, policies and p ..read more

The growth of social impact and ESG funds is an expression of free markets responding to investor demand. In recent news cycles devoted to social impact and ESG investing, an essential storyline — as told by the data and professional investors — risks getting lost. At their foundation, ESG investment vehicles are an expression of Adam Smith’s “enlightened self-interest”; they are in accord with basic market principles, deploying private capital in response to investor demand, being judged on financial returns as well as ESG benefits. Analysts and academics have been marking the increasing dema ..read more

On May 3, 2023, the Securities and Exchange Commission (SEC) adopted certain amendments to Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds, with the goal of enhancing the SEC’s oversight and investor protection efforts. As discussed in greater detail below, the amendments require (i) all private equity fund advisers to file reports after every quarter in which certain triggering events occur, (ii) large private equity fund advisers to provide additional annual reporting with respect to certain fund activities and (iii) large hedge fund a ..read more

On Feb. 15, the Securities and Exchange Commission (SEC) proposed significant amendments to Rule 206(4)-2 (Custody Rule) under the Investment Advisers Act of 1940 (Advisers Act). The proposed changes would redesignate the current Custody Rule as new Rule 223-1 under the Advisers Act (Safeguarding Rule) and would reshape the obligations of both SEC-registered investment advisers (RIAs) and qualified custodians under the existing rule. We summarize some of the more salient proposed changes below, and the full SEC release and proposed changes can be found here. Scope of the Safeguarding Rule The ..read more

On March 30, the SEC published its examination priorities for 2022. Every year, the SEC publishes a report discussing its areas of focus for examinations, providing industry participants a view into what the SEC considers to be the areas of heightened risk to investors, registered investment advisers (RIAs), broker-dealers and other market participants, as well as the markets generally. In this year’s report, some of the SEC’s key focus areas are: private funds; Environmental, Social and Governance (ESG) investing; retail investor protection; information security and operational resiliency; an ..read more