Regulatory requirements, SEC filings, and compliance program fundamentals
Private equity fund managers operating in the United States face a regulatory framework centered primarily on the Investment Advisers Act of 1940 and its associated rules. Most PE managers with over $150 million in regulatory assets under management must register with the Securities and Exchange Commission as investment advisers, subjecting them to examination, reporting requirements, and fiduciary obligations. Understanding these requirements is essential for maintaining regulatory standing and investor confidence.
Registered investment advisers must file Form ADV, which consists of two parts. Part 1 contains information about the adviser's business, ownership, clients, employees, disciplinary history, and other regulatory matters. Part 2, known as the "brochure," provides narrative disclosure about advisory services, fees, conflicts of interest, and business practices that must be delivered to clients.
Form ADV requires annual updating within 90 days of the fiscal year end, with interim amendments required promptly when certain information becomes materially inaccurate. Private equity managers must pay particular attention to disclosures about fund strategies, fee arrangements, conflicts of interest, and disciplinary matters.
Private fund advisers with at least $150 million in private fund assets under management must file Form PF with the SEC. This form collects systemic risk data about private funds and varies in complexity based on adviser size and fund type. Large private equity advisers, generally those with $2 billion or more in PE fund assets, face more detailed quarterly reporting requirements.
Form PF requires information about fund size, leverage, investor concentration, portfolio composition, and counterparty exposures. The reporting thresholds and requirements have evolved since initial implementation, and compliance teams should monitor for regulatory updates that may affect filing obligations.
Institutional investment managers with $100 million or more in Section 13(f) securities must file quarterly reports on Form 13F disclosing their holdings. While private equity funds primarily hold private company interests, PE managers may hold public securities through co-investments, PIPE transactions, or temporary holdings during portfolio company exits. These positions may trigger 13F filing obligations.
Additionally, beneficial ownership reporting under Schedules 13D and 13G may apply when a fund acquires more than 5% of a public company's voting securities. The timing and form requirements depend on the acquirer's intent and status, requiring careful monitoring of portfolio positions approaching public company ownership thresholds.
Rule 206(4)-7 under the Advisers Act requires registered advisers to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of securities laws. The adviser must also designate a Chief Compliance Officer responsible for administering these policies. The compliance program should address areas specific to private equity operations, including valuation procedures, allocation policies, expense allocation, and conflicts of interest.
Annual compliance reviews are required to assess the adequacy and effectiveness of compliance policies and procedures. Many PE managers conduct these reviews during the first quarter, documenting findings and any recommended changes. The CCO typically presents review findings to senior management or the fund's advisory committee.
SEC examinations of private equity advisers have increased in frequency and scope. Examiners typically focus on fees and expenses, conflicts of interest, valuation practices, and disclosure accuracy. Compliance teams should maintain examination readiness by organizing key documents, conducting periodic mock examinations, and addressing known issues proactively.
Common examination findings in the PE industry have included inadequate disclosure of fee arrangements, improper expense allocation, insufficient policies around co-investments, and valuation methodology inconsistencies. Monitoring SEC enforcement actions and examination priorities helps compliance teams anticipate areas of regulatory focus.
The private equity regulatory landscape continues to evolve. Recent years have seen increased SEC focus on private fund adviser practices, including proposed rules that would affect fee disclosure, preferential treatment of certain investors, and quarterly statement requirements. Compliance teams should track regulatory developments and assess potential impacts on fund operations and investor communications.
State registration requirements may apply to advisers not registered with the SEC or operating in states with notice filing requirements for SEC-registered advisers. Additionally, non-U.S. activities may trigger foreign regulatory obligations that require coordination with local counsel.