Former SEC private funds co-head identifies five ‘major’ impacts of reg proposals

Iron Road Partners, the regulatory consultancy firm founded by Igor Rozenblit, has published a chart showing the key ways the US Securities and Exchange Commission's proposals will affect GPs.

The US Securities and Exchange Commission’s proposals to improve the regulation of private funds will impact the industry in five major ways, according to the former co-head of the SEC’s private funds unit.

Iron Road Partners, the regulatory and consultancy firm founded by 12-year SEC veteran Igor Rozenblit, published a chart showing how the regulator’s proposals are likely to affect GPs.

“We believe that, if implemented, the current private fund reporting and transparency rule proposals have the potential to reshape the private fund industry and shift the SEC’s current principles based regulatory approach towards private funds,” the firm noted in a LinkedIn post.

The chart examines six main areas of the SEC’s proposals:

  • immediate event reporting;
  • additional Form PF reporting;
  • investor reporting;
  • preferential treatment;
  • clawback mechanics and indemnity; and
  • other requirements and prohibitions.

It matches these areas against five main risks for GPs and gives them a rating of either major, moderate, small or minimal. The five areas deemed to bring a major impact for GPs include: exam risks for GPs when it comes to proposals for Form PF reporting; the risk of errors when reporting fees, expenses and performance to investors; and lower income/higher costs due to requirements around GP-led secondaries and prohibitions on borrowing, among others.

Iron Road SEC proposals
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The SEC this year published separate proposals that attempt to level the playing field for investors in private markets. In February, Rozenblit told affiliate title Buyouts that the SEC’s proposals were written broadly and could capture practices not intended to fall under the scope of the rules.

“There are many vertically integrated managers who allocate services using a methodology other than time for services performed, which may be viewed by the commission as falling outside of the ‘unperformed work’ prohibition of the rule,” Rozenblit said. “Changing the allocation for those managers would be very expensive and lengthy.”

The sweeping proposals for private funds could have significant implications for overseas and domestic managers alike. Foreign GPs will be impacted by at least some of these changes provided they have a touchpoint with the US, such as managing US investor capital or having a place of business in the US, Private Equity International reported on Monday.

“It is important that all international PE managers pay close attention to these proposals and developments and think about whether and to what extent they are subject to the specific rules and, if not, should comply with the spirit of the rules,” said Brad Caswell, a New York-based investment funds partner at Linklaters.

The proposals are undergoing public comment periods, which should end by mid-April.

– Chris Witkowsky and Alex Lynn contributed to this report.