Private fund adviser rules vacated: Key takeaways

A three-judge panel of the US Court of Appeals for the Fifth Circuit unanimously vacated the US Securities and Exchange Commission (SEC)’s private fund adviser rules and amendments (Private Fund Rules),[1] stating that “no part of it can stand.”[2]

In August 2023, the SEC adopted the Private Fund Rules, which included five new rules: the Private Fund Audit Rule, the Quarterly Statements Rule, the Restricted Activities Rule, the Adviser-Led Secondaries Rule, and the Preferential Treatment Rule. These rules would have imposed significant compliance and regulatory requirements on private fund advisers. Also included were two rule amendments addressing annual compliance documentation and retentions of books and records.

The petitioners[3] asked the court to treat the Private Fund Rules as a single “rule,” and vacate them all together. The court agreed, holding that the SEC exceeded its statutory rulemaking authority in adopting the Private Fund Rules.[4]

What does this mean for compliance?

Private fund advisers, including those registered and exempt from registration, are no longer required to comply with the technical requirements of the private fund adviser rules as of the respective compliance dates. In addition to the five new rules, this includes the amendment to the Compliance Rule[5] that required registered investment advisers to document the annual review of their compliance policies and procedures in writing.

While technical compliance with the Private Fund Rules is no longer required, advisers and their dealings with private fund clients continue to be subject to the Investment Advisers Act of 1940, as amended. Advisers should remain aware that the SEC and its staff have interpreted certain activities highlighted in the Private Fund Rules as potentially prohibited under the Advisers Act, and an adviser’s fiduciary duty. SEC examination and enforcement staff likely will continue to focus on concerns sought to be addressed by the Private Fund Rules.

Going forward

The SEC now has the option to seek a rehearing en banc in the court, although such a step seems unlikely, or appeal the decision to the Supreme Court. The SEC has not made any public statements following the decision about whether they intend to take further action in the courts.

In the meantime, this ruling sets precedent for future efforts to regulate the private fund industry. There are a number of proposed rules and amendments on the SEC’s regulatory agenda that rely on similar statutory authority and may be impacted by this ruling.

If you have any questions about the Fifth Circuit’s decision, please contact the authors or your DLA Piper relationship attorney.


^{[1] See Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews, Release No. IA-6368 (Aug. 23, 2023) (the Adopting Release) available at https://www.sec.gov/files/rules/final/2023/ia-6383.pdf.
[2] National Association of Private Fund Managers v. Securities and Exchange Commission, No. 23-60471, (5th Cir.) (June 5, 2024).
[3] Petitioners included National Association of Private Fund Managers, Alternative Investment Management
Association, Ltd., American Investment Council, Loan Syndications and Trading Association, Managed Funds Association, and the National Venture Capital Association.
[4] The court stated that the SEC exceeded its statutory authority under both Section 211(h) (“We therefore hold that section 211(h) applies to ‘retail customers’…) and Section 206(4) (“The Commission cannot rely on section 206(4) for the authority to adopt the [Private Fund Rules].”)
[5] Advisers Act Rule 206(4)-7.}