Regulatory Forum

On March 27, 2025, the SEC voted 2-1 to end its defense of rules that were adopted in March 2024 requiring enhancement and standardization of climate-related disclosures. The prior rulemaking was championed by former Chairman Gary Gensler and Democratic Commissioners, who argued it was necessary to provide investors with the information they need to make informed decisions, while Republican Commissioners dissented, arguing the rule was likely to overwhelm investors. While the decision does not directly relate to the pending rules for investment advisers and investment companies that would require enhanced disclosures about ESG investment practices, it does suggest that these are unlikely to move forward under the current Commission.

FinCEN has issued an interim final rule that removes the requirement for U.S. companies and U.S. persons to report BOI to FinCEN under the CTA. There may be limited scenarios in which a foreign-domiciled fund portfolio company or entity within a foreign fund structure meets the definition of a reporting company and requires reporting of its non-U.S. beneficial owners. The firm should consult with counsel if there are any questions as to whether or not an exemption applies to a given entity.

On March 12, 2025, the SEC Division of Corporation Finance issued a no-action letter to Latham & Watkins in response to a request for interpretive guidance on Rule 506(c) of Regulation D under the Securities Act of 1933, as amended. Rule 506(c) permits the use of general solicitation in Rule 506 offerings if all of the purchasers are accredited investors and if the issuer takes “reasonable steps to verify” the accredited investor status of purchasers. The no-action letter proscribes a process through which an issuer could reasonably conclude that it has taken reasonable steps to verify a purchaser’s accredited status when the purchaser agrees to a certain minimum investment amount that satisfies the asset threshold required under the “accredited investor” definition (i.e., $200,000 for a natural person or $1 million for an entity) and provides written representations regarding such investment. This guidance opens the door for more private fund managers to avail themselves of the Rule 506(c) exemption and more actively fundraise through the use of general solicitation, assuming they have established relevant policies and procedures to rely on the conditions in the no-action letter.

On March 19, 2025, the SEC Division of Investment Management added to its Marketing Rule Frequently Asked Questions (FAQ). The publication includes new guidance related to the presentation of extracted performance and certain portfolio investment characteristics. One of the added responses reverses a position that was previously taken by SEC staff and should result in a more reasonable approach to applying the full and fair disclosure principles that the rule was intended to establish. The updates are summarized below.

Extracted Performance: In this updated FAQ response, the SEC noted that they would not object if an adviser presents extracted performance of one investment or a group of investments from a private fund or portfolio on a gross basis without providing corresponding net performance if the adviser abides by specific guidelines including: (i) clearly identifying gross performance, (ii) including total fund or portfolio gross and net performance, (iii) presenting the information with equal prominence, and (iv) providing the information over a consistent and disclosed time period.

Portfolio Investment Characteristics: In this new FAQ response, the SEC acknowledged that it is unclear whether certain portfolio and investment characteristics (yield, coupon rate, contribution to return, etc.) should be treated as “performance” requiring reporting on a gross and net basis. The SEC confirmed that it would not object to the presentation of one or more gross characteristics of a portfolio or investment without providing a corresponding net characteristic, so long as the adviser follows the same stipulations for extracted performance.

On March 18, 2025, the SEC and CFTC adopted an amendment to Form PF to correct certain errors and incorrect cross-references in the form based on two different amendments adopted on July 12, 2023, and March 12, 2024. The new Form PF was expected to be effective on March 12, 202,5 but has been extended to June 12, 2025. The corrections in this amendment are limited and technical in nature and are not expected to materially impact Form ADVs that are filed in April 2025 or subsequent filings after the new Form PF is in effect.

Rule 35d-1 under the Investment Company Act of 1940 (the Names Rule) was originally adopted in 2001, and amendments to the Names Rule were finalized in September 2023 with an effective date of December 11, 2023, and the compliance date of December 11, 2025, for larger entities and June 11, 2026, for smaller entities. On March 14, 2025, the SEC announced a six-month extension of these compliance dates to allow funds additional time to implement the amendments properly, develop and finalize their compliance systems, and test their compliance plans. The new compliance dates are June 11, 2026, for larger funds and December 11, 2026, for smaller funds. On January 8, 2025, the Division of Investment Management published a Frequently Asked Questions (FAQ) regarding the Names Rule.

While the Names Rule is not applicable to private funds, it does establish principles regarding fund naming conventions and representations to fund investors regarding fund investment strategies and focus areas. These principles can be instructive to private fund managers, who are prohibited under Rule 206(4)-8 of the Investment Advisers Act from making any misleading statements to investors or prospective investors in pooled investment vehicles.