The SEC’s recent FAQs on its Marketing Rule offer welcome clarity on areas of concern and confusion. The FAQs address the Rule’s requirements on presenting extracted performance and portfolio characteristics. Upon its release, ThinkAdvisor turned to Amy Lynch, FrontLine’s Founder and President for commentary about its significance. Extensively quoted throughout the story, Ms. Lynch offers the following points on the Marketing Rule FAQs and its components:
- The new FAQs – “It provides exactly the guidance needed by the industry and is in line with how FrontLine Compliance has been advising its clients since 2022.”
- On extracted performance being a controversial part of the Rule – “Extracted performance means the performance results of a subset of investments extracted from a fund or other portfolio, as opposed to an entire fund’s performance results. FrontLine has seen SEC examiners interpret it in conflicting ways during exams over the past two and a half years. When examiners fail to show consistency with a Rule requirement, it’s time for a change.”
- On the FAQs’ footnotes – “They are the most meaningful in that they provide the details on the necessary disclosure language required to make the presentation not misleading.”
- On presenting fund performance data – “It’s good that the overall fund performance does not need to be on the same page as the extracted performance since page space can be an issue in marketing materials, and this will also make it easier to display the data with ‘at least equal prominence.'”
- On the FAQs’ answer on portfolio characteristics – “The staff is stating that if the gross and net performance of the total fund portfolio is shown in equal prominence then that will make the presentation of other characteristics not misleading when shown. The alignment of each approach allows the private fund industry to have a clearer understanding of how to handle these two situations.”
See ThinkAdvisor, “SEC Releases New Marketing Rule FAQs on Performance”
