private fund investments

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Amid a challenging environment for exits, especially in the wake of the recent market volatility, private fund managers continue to pursue alternative strategies, such as term extensions and liquidity solutions, to ride out the liquidity downturn. While these measures are designed to protect the value of the funds’ investments and are frequently requested by limited partners, they raise potential regulatory concerns that have been the subject of SEC scrutiny in the past. As noted by a senior staff member of the Division of Examinations in March, the SEC continues to conduct exams with a focus on the bread-and-butter issues like fees, conflicts and related disclosures. Therefore, as funds approach maturity, it is worth reviewing the areas that have received the greatest regulatory attention.

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.

Proskauer partner Josh Newville discussed the SEC’s focus on valuation of private fund investments at the recent Securities Enforcement Forum West 2020. The global COVID-19 crisis has added a layer of complexity to the valuation process, requiring special care. As we predicted in our 2020 Top Ten Regulatory…