Photo of Robert Sutton

Robert is a partner of the Private Funds Group and a member of the Corporate Department. He is a seasoned practitioner with over 20 years of experience counseling managers and advisers of private funds on regulatory matters, as well as regulatory issues related to the formation and operation of private equity, credit, real estate, infrastructure, hedge and other private funds.

Rob has a deep knowledge of the market practice of asset managers and in particular, as it relates to Advisers Act-related issues. From some of the largest and most sophisticated firms in the global asset management industry to start-ups and mid-sized firms, Rob’s experience includes a wide spectrum of funds and asset classes across their life cycles. Rob regularly advises on matters in connection with: U.S. investment adviser registration and regulation; Advisers Act and other U.S. securities law issues relating to the formation, marketing and offering of private funds; Identifying and managing conflicts of interest, and addressing related Advisers Act risks, SEC examinations, and exam readiness preparation; Design and implementation of investment adviser compliance policies and procedures; U.S. regulatory issues relating to purchases and sales of investment advisory businesses (minority stake and control stake transactions, buy-side and sell-side representations); Advisers Act and other U.S. regulatory issues relating to private fund restructurings and recapitalizations, strip sales, continuation fund formations and similar transactions; Advisers Act issues relating to the formation of SPACs by investment advisers; and, Investment Company Act status analyses of private fund structures, investment transaction structures and other non-registered investment company structures.

Rob has been recognized by his clients and peers for his extraordinary work, gaining various accolades including mentions in preeminent directories such as The Legal 500.  He is also very active within the private funds industry, contributing to numerous publications and collaborating on several speaking engagements.

Prior to joining Proskauer, Rob was a partner in the Investment Funds Group at Kirkland & Ellis.

Adviser-led secondary transactions have seen explosive growth over the last five years.  That growth has brought increased regulatory concerns over the conflicts of interests inherent in these transactions and a perceived lack of transparency into this market.  New SEC rules adopted in 2023 will arm regulators with additional tools to identify, exam and investigate market practices.  It is therefore critical for managers running an adviser-led secondary transaction to not only comply with the new rules as they become effective but to structure any such transaction with the SEC’s concerns in mind. 

2023’s excitement for generative artificial intelligence (AI) prompted the SEC to respond on multiple fronts – stump speeches, rulemaking, new exam priorities and sweeps and previewing potential enforcement actions. SEC Chair Gary Gensler raised concerns regarding potential conflicts and investor harm resulting from the proliferation of AI and warned that an AI-caused financial crisis is nearly unavoidable absent regulation. The SEC adopted a number of initiatives in 2023 to respond to these perceived risks. 

ESG continues to be a hot topic for 2024 for investors and regulators alike. The specific concerns investors and regulators have – and what they expect to develop over the coming months – differ, however, across jurisdictions, including because of the different maturity of existing regulation between the EU/UK and the US.

Economic headwinds and the interest rate environment that developed over the course of 2023 increased financial stress on portfolio companies and portend heightened litigation risk in 2024 for portfolio companies and their private fund sponsors. Specifically, interest rate increases that accelerated through 2022 continued in 2023, and compounded existing economic stressors including tight liquidity and inflation coming out of 2020 and 2021, as well as increased cost and other burdens related to ESG and regulatory compliance. These pressures put portfolio companies in often unsustainable financial positions, causing them to prematurely seek liquidity events, violate debt covenants with lenders, and resort to bankruptcy, all of which has led to an increase in disputes and litigation, which we expect to continue in 2024.

In a wave of SEC rulemaking this past year, representing a “new world order” event akin to Dodd-Frank, the SEC has provided itself with a fresh set of tools to increase regulatory and enforcement scrutiny on private funds. Among other things, certain of the rules could result in fundamental changes to market practices and greater disclosure to LPs. While ongoing litigation will determine the fates of the Private Fund Adviser Rules, the Short Sale Disclosure Rule, and the Securities Lending Rule, and while other rules are awaiting final adoption, the SEC concerns underlying the rulemaking will continue regardless.   

To understand the litigation and regulatory risks that are coming in 2024 for private capital, it is helpful to look back briefly on recent events. Arguably, the single most important event over the last 18 months was the rapid increase in interest rates by the central banks in the United States, England, and Europe. From March 2022 to August 2023, the Federal Reserve increased interest rates at the fastest clip in more than 40 years, to break inflation that had reached the highest levels since the 1970s.

Earlier today, the SEC’s Private Fund Adviser Rules were published in the Federal Register. As with all federal regulations, publication in the Federal Register begins the countdown to the Rules’ compliance dates. These dates are listed in the table below. Please see our prior alerts for an overview of

On Friday, September 1, 2023, a lawsuit was filed with the federal Court of Appeals in the Fifth Circuit challenging the validity and enforceability of the recently adopted Private Fund Adviser Rules under the Investment Advisers Act of 1940 (the “Advisers Act”).  (Please see our prior alerts for a description of the Rules’ provisions and their applicability to non-U.S. investment advisers.)  The lawsuit was filed in the form of a Petition for Review pursuant to Section 213(a) of the Advisers Act, which authorizes such a petition for persons “aggrieved” by the actions of the Securities and Exchange Commission (the “Commission” or the “SEC”).

On August 24, 2023, the Second Circuit Court of Appeals issued its much-anticipated decision in Kirschner v. JP Morgan Chase Bank, holding that the syndicate term loans at issue were not securities. As noted in our earlier blog post, the SEC declined the court’s request to file an amicus brief, forgoing the opportunity to provide its views on the issue and influence the outcome of the appeal.[1]

SEC Emblem

Yesterday, the five SEC commissioners voted 3-2, along party lines, to approve the Private Fund Adviser Rules. The final Rules scale back from what was initially proposed 18 months ago, in ways that are likely to be a relief to many private fund advisers. (For a summary of the initial proposal, please see our previous Alert.) Even in their current form, however, the Rules still impose many new obligations and introduce new prohibitions that are likely to significantly alter business practices, and impose new administrative burdens and costs, across many registered and exempt private fund advisers. All private fund advisers should therefore review their practices in light of the new Rules in order to assess whether and how their practices and documentation will need to change before the Rules’ compliance dates.