The Securities and Exchange Commission’s recently finalized rule on private fund advisors will impose new disclosure and audit requirements on private equity firms, hedge funds and venture capital firms, even if they’ve already been providing some of this information.
The SEC’s long-standing custody rule has required private funds to disclose much of this information, but there are new wrinkles and requirements. The new requirements will make these funds disclose more information about their fees, expenses and performance, and require annual financial statement audits for each fund they advise to be distributed to investors, in the hopes of safeguarding investors against the misappropriation of fund assets (see story).
“Having the funds audited has been a widespread practice for the most part, primarily through the custody rule,” said Chris Avellaneda, a partner at the law firm Schulte Roth & Zabel in New York. “There are some specific areas that are going to create some challenges, but overall having the funds audited as an official matter has been a very common practice in the private funds industry.”
