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SEC’s ‘Surprise’ Marketing Rule Guidance to Revamp Performance Math

By February 29, 2024No Comments

Silver’s CEO, Fizza Khan, recently spoke with Tom Stabile, a senior reporter at FundFire, about the SEC’s recently updated FAQs under the new Marketing Rule, which address disclosure performance information, and the impact this will have on private fund managers now and into the future. 

Digging into this recent trend, Fizza explains that the heart of the new guidance calls out how managers historically have presented their gross internal rate of return (IRR) performance data without accounting for the use of credit subscription lines, while including those debt facilities in their calculations of net IRRs. Subscription lines are widely used in the early days of a private fund’s lifecycle, allowing managers to invest in deals without requiring investors to make capital calls right away – which often results in a higher net IRR. “The primary goal here is to level the playing field between net and gross performance,” she said.

Fizza goes on to say that managers choosing to include the subscription line data would likely need to make additional disclosures about the impact of that information on the returns. “You would have to be transparent,” she said.

According to Fizza, one reason the SEC may have issued the recent guidance is in an attempt to harmonize the Marketing Rule with the new reporting and disclosure requirements under the Private Fund Adviser Rule adopted last summer. “Further amending the Marketing Rule is a much more tedious process than just issuing an FAQ,” she said.

To read the full article please visit the FundFire website here