Triage for a rule that might not survive: the SEC’s private fund adviser package
The private fund adviser rules adopted in August 2023 were vacated ten months later. Advisers that sorted the work into what investors would demand, what existing law already required and what only the rule required spent little that was wasted.
Looking Back revisits one week at a time, from January 2020 to today, and asks what it meant for the banks, health systems and public agencies we serve. The series was written in 2026, with the benefit of hindsight, and each article says which week it looks back on.
The week
On August 23, 2023, the Securities and Exchange Commission adopted a package of rules for advisers to private funds. Registered advisers would have to send investors quarterly statements on fund fees, expenses and performance. They would also need an annual financial statement audit for each private fund and a fairness or valuation opinion for adviser-led secondary transactions. All advisers to private funds, registered or not, faced restrictions on certain fees and expenses absent disclosure or investor consent, and limits on preferential treatment, including disclosure of side-letter terms granted to some investors. Compliance dates were staggered over the following year and a half, with larger advisers first. Industry groups challenged the rules in the U.S. Court of Appeals for the Fifth Circuit about a week after adoption.
Private equity, private credit and hedge fund advisers, and the wealth managers and family offices that run private vehicles, faced an awkward planning problem in the fall of 2023. A large rule had compliance dates 12 to 18 months away and a credible legal challenge pending. Building everything risked waste. Building nothing risked a scramble if the rule survived. A firm could triage instead, sorting each piece of work by why it would be needed. We use three categories, which between them cover every obligation in the package: work investors would demand anyway, work existing law already required, and work only the rule required.
Work investors would demand anyway
The quarterly statement was the heaviest operational lift. It required, in a prescribed table, fund-level fees and expenses, adviser compensation, offsets, rebates and waivers, and performance calculated differently for liquid and illiquid funds. Most of this was not new to institutional investors. The Institutional Limited Partners Association had published a reporting template years earlier, and large pension plans and endowments already asked for fee and expense detail in operational due diligence questionnaires.
The hard part was the data, not the format. In many firms, fee figures came from the fund administrator, expense allocations from the accounting system, and management fee offsets from a spreadsheet maintained by one person in finance. Producing a reconciled quarterly number required a single fee and expense ledger per fund, with each line tied to its source document and its allocation rule. It required a calculation for offsets that someone other than its author could reproduce, and a sign-off by the chief financial officer or fund controller before release.
That ledger had value whatever the Fifth Circuit decided. It shortened investor reporting cycles, answered due diligence questionnaires faster, and reduced the cost of fundraising with large allocators. A firm could fund it from the fundraising budget rather than the compliance budget, which made the litigation risk irrelevant to the investment decision.
Work existing law already required
Several restrictions in the package codified expectations the SEC had already been enforcing under the antifraud provisions of the Advisers Act. Allocating expenses fairly between a flagship fund and its co-investment vehicles, disclosing fees charged by the adviser’s affiliates, and avoiding undisclosed accelerated monitoring fees had all featured in enforcement actions before 2023. A rule could change the penalty and the burden of proof. It did not create the underlying duty.
The practical work here was evidence. An allocation policy is worth little if nobody can show how a given invoice was split. Firms needed allocation decisions recorded at the time they were made, with the policy clause applied and the approver named. They needed a register of affiliated service providers and every fee each one charged a fund. And they needed a side-letter register, because existing disclosure duties already required advisers to avoid misleading investors about who received better terms.
The side-letter register was the most neglected asset in the industry. Side letters were negotiated by investor relations and legal over many years, stored as documents and tracked informally. Building the register meant extracting each obligation, such as most-favored-nation rights, excuse rights, notice rights and fee discounts, and mapping it to investors and funds. Some firms trialed language models for the first pass of extraction, with lawyers checking every result. The output also served daily operations: a compliance team that knows which investors are owed notice of a key-person event can actually give it.
Work only the rule required
A smaller set of obligations existed only because of the rule. The prescribed statement layout, the mandatory audit for funds not already audited, the fairness or valuation opinion for adviser-led secondaries, and the specific advance notice for certain preferential terms fell into this category. If the rule fell, this work had no independent value, apart from good practice that some firms would adopt voluntarily.
Here the sensible approach was to prepare without committing. A firm could identify which funds lacked audits and obtain quotes, without signing engagement letters. It could select candidate opinion providers and document their relationships with the adviser, without paying retainers. It could draft statement templates and map the ledger’s fields to them, without building the production process. Counsel could then track the litigation calendar against the compliance dates, with a written trigger for when preparation turns into execution.
Adviser-led secondaries deserved a separate look even in this column. Continuation funds were growing quickly, and investors were already pressing advisers on how prices were set when the adviser sat on both sides. A firm that planned more of these transactions could reasonably decide to obtain independent opinions anyway, as a negotiating asset with investors, and move that line item into the first column.
The triage also had a governance benefit. A chief compliance officer who presents the board or management committee with three columns, and a spend figure under each, can explain why most of the budget is safe and how much is at risk. That is a more defensible position than either building everything on the regulator’s timetable or waiting for a court.
With hindsight
On June 5, 2024, the Fifth Circuit vacated the private fund adviser rules in their entirety, holding that the SEC had exceeded its statutory authority. The SEC did not seek further review, and the compliance dates fell away. The first category of work kept paying off. In January 2025 the Institutional Limited Partners Association released an updated reporting template, with more detail on fee rebates, waivers, offsets and related-party expenses, and a new performance template, both intended for funds from 2026. Much of the vacated quarterly statement’s content returned as a market standard, enforced by investors in side letters rather than by rule. The second category also held: fees, expenses and conflicts remained recurring themes in SEC examinations under existing law, even as the agency’s rulemaking agenda changed under new leadership in 2025. The third category is where firms that built in full lost money.