Finalized private fund rule ramps up compliance requirements (PitchBook)

The SEC’s new private fund rule has been adopted and advisers to private funds will face a host of new requirements. Despite softening some aspects of the rule in its final form, several significant parts of the rulemaking will mandate changes to the traditional practices of managers. Prohibitions will be required on preferential terms, usually found in side letters for negotiating special agreements with certain investors. There will also be a new requirement to provide quarterly financial statements to investors and another requirement to receive a fairness or valuation opinion on GP-led secondary transactions. Amy Lynch, FrontLine’s Founder and President, explains that one component of the rule provides a legacy provision to allow existing investor agreements to be grandfathered and importantly, removes what would have been a tremendous burden for firms to have to re-paper their current side letter agreements. Even so, the information that will be available to investors about side letter provisions with other LPs would likely impact how private fund managers pursue capital allocations for their funds. See PitchBook, “New SEC rules could arm LPs with more negotiating power”