Third-party opinion component adds complexity to new private fund rule (PitchBook)

The SEC’s new private fund rule requires managers to seek a third-party perspective when conducting GP-led secondary offerings. The new rule mandates obtaining either a fairness opinion or a valuation letter from an outside party to address any conflicts of interest and validate pricing in deals. The SEC added the valuation letter option to the rule, a more informal and familiar method in private market transactions, as opposed to fairness opinions that are more common in public market deals. In the lead quotes, FrontLine’s Founder and President Amy Lynch states that the SEC’s decision to include the valuation letter option in the final rule was a recognition by the regulator of where private fund managers would have the greatest comfort. Ms. Lynch, who helped write the FINRA rule on fairness opinions, notes that either opinion option offers enhanced protections for investors. She explains that by requiring firms to disclose how they value their assets in these types of transactions, it helps mitigate conflicts of interest, promotes transparency and adds oversight to valuations. See PitchBook, “SEC gives GPs disclosure options for continuation funds”