On 1 September 2023, the Alternative Investment Management Association Limited (AIMA), along with the National Association of Private Fund Managers and four other business trade associations, filed suit in the US Court of Appeal for the Fifth Circuit, asking the Court to set aside the final Private Fund Advisers Rules, adopted by the Securities and Exchange Commission (SEC) on 23 August 2023 on the grounds that they exceed the agency’s statutory authority and are contrary to law.

This united front represents a wide spectrum of the private funds sector, including the American Investment Council, Loan Syndications & Trading Association, Managed Funds Association, and National Venture Capital Association.

AIMA believes the new rules are damaging to the industry and its investors, imposing restrictions which could limit innovation and investment opportunities while lacking a sound legal basis for their adoption. In particular, these regulations necessitate quarterly investor reports detailing performance, fees, and expenses. Furthermore, every private fund must undergo annual audits. Additionally, advisers are obligated to secure fairness or valuation opinions for specific transactions.

One of AIMA’s key concerns revolves around the potential setback for the industry. The new rules could make it difficult for private fund managers to offer tailored solutions to fund investors. Research and investor feedback has highlighted the growing trend of customisation, demonstrated by institutional investors shifting away from standardised products to a partnership model.

Jack Inglis, CEO of AIMA, expressed the necessity of this legal action: "The decision to file suit is one we must take to protect the interests of our members against the severe and adverse impacts of the new rules. AIMA agrees with the public statements made by SEC Commissioners Hester Peirce and Mark Uyeda that the adoption of the rules is both harmful and unlawful and lacks proper economic analysis of the effect on the private funds industry and the essential source of capital it provides."

SEC’s Private Fund Adviser rule - SEC has introduced new rules under the Investment Advisers Act of 1940 to safeguard investors in private funds. These rules aim to enhance transparency in compensation schemes, sales practices, and conflicts of interest. They require registered investment advisers to private funds to disclose fees, expenses, and other relationship terms to investors. Private fund advisers must conduct annual financial statement audits and obtain independent fairness or valuation opinions in specific cases. Additionally, all private fund advisers, even those not registered with the SEC, must provide disclosure and, in certain cases, seek investor consent for restricted activities. The rules also prohibit preferential treatment that could negatively impact other investors, with some exceptions. Amendments to related Advisers Act rules are being implemented to support compliance and examinations. The rules will become effective 60 days after publication in the Federal Register.

The AIMA press release can be found here and the lawsuit can be accessed here.

SEC’s final rules announced on 23 August 2023 can be found here.