On November 10, 2021, U.S. Securities and Exchange Commission Chair Gary Gensler, made a speech at the Institutional Limited Partners Association (“ILPA”) Summit that provides a useful summary of the SEC’s immediate priorities with respect to the regulation of private funds. We note that several of these items appear to signal a change in the approach the SEC took in the recently adopted Fiduciary Duty Guidance in 2019¹ and the Marketing Rule in 2020².  

• Private fund fees and expenses – Chair Gensler expressed concerns with whether investors have “the consistent, comparable information they need to make informed investment decisions” with respect to fees and expenses. He has asked the SEC staff “to consider what recommendations they could make to bring greater transparency to fee arrangements.” The SEC notably declined to require a schedule of fees and expenses in performance presentations under the Marketing Rule.³
• Side letters – Chair Gensler stated he is concerned that side letters may create “uneven playing field” including with respect to preferred liquidity terms or disclosures or different fees. He has asked the SEC staff to “consider recommendations regarding how we can level the playing field and strengthen transparency, or whether certain side letter provisions should not be permitted.” 
• Performance metrics – Chair Gensler is concerned with the inability of private fund investors (as well as the general public) to compare private fund performance with public market performance. He has asked the SEC staff to consider “what we can do to enhance [] transparency” with respect to reporting performance on a risk-, liquidity-, and leverage-adjusted basis. The SEC declined to prescribe specific calculation requirements for net performance under the Marketing Rule.⁴
• Fiduciary duties and conflicts of interest – Chair Gensler expressed concerns about the modification and reduction of fiduciary duties by general partners. He has asked the SEC staff “how we can better mitigate the effects of conflicts of interest between general partners, their affiliates, and investors. … [including] considering the need for prohibitions on certain conflicts and practices.” In the Fiduciary Duty Guidance, the SEC declined to impose strict prohibitions on certain conflicts of interest and practices, particularly with respect to institutional investors.⁵
• Form PF – Chair Gensler noted that the SEC has “learned a lot” since the adoption of Form PF (specifically citing role of hedge funds in “the March 2020 dysfunction in the Treasury market”). He has asked the SEC staff for “recommendations for the Commission’s consideration around enhancing reporting and disclosure through Form PF or other reforms,” including “whether more granular or timelier information would be useful.”

¹ Commission Interpretation Regarding Standard of Conduct for Investment Advisers, SEC Release No. IA-5248 (Jun. 5, 2019) (“Fiduciary Duty Guidance”).
² Investment Adviser Marketing, SEC Release No. IA-5653 (Dec. 22, 2020) (“Marketing Rule Release”).
³ Marketing Rule Release at pp. 167 – 168 (noting that such a schedule would not be necessary since “requiring net performance for all advertisements with appropriate disclosures will alert investors
to the effect of fees on an adviser’s performance results”).
⁴ Marketing Rule Release at p. 173 (stating “[w]e believe that prescribing the calculation of net performance could unduly limit the ability of advisers to present performance information that they believe would be most relevant and useful to an advertisement’s audience”).
⁵ Fiduciary Duty Guidance at fn. 69 and the accompanying text (backing away from a “general statement about an inability to fully and fairly disclose material facts about the conflict”).