On February 6, 2024, the U.S. Securities and Exchange Commission (“SEC”) issued updated FAQs for investment advisers related to SEC Rule 206(4)-1 (the “Marketing Rule”) and reporting gross and net performance. has been published. within the ad. Under the new FAQ, the SEC staff states that although the Marketing Rule does not prescribe a specific methodology or calculation for performance, in situations where an investment adviser uses gross performance income and net performance income, net income is defined as “over the same period of time. It has to be calculated.” And it uses the same kind of benefits and methodology as total performance. ”
In a new FAQ, the staff explains that certain investment advisers to private funds (using a capital call line or other similar borrowings) will calculate the total internal rate of return (“total IRR”) on an investment from the time the investment is made (using a capital call line or other similar borrowing). ”). However, the effect of such facilities is excluded in the calculation of gross IRR), the net internal rate of return (the “net IRR). This FAQ further states that for private fund advisors, if gross and net IRR are used in advertising, (i) gross IRR excluding the impact of applicable borrowings may not be presented compared to net IRR alone; , points out that this would be a violation of marketing rules. It will present IRR calculations made over different time periods and therefore take into account the effects of borrowings, and (ii) present performance in a format “designed to facilitate gross and net comparisons.” would be a further breach of the provisions of the Marketing Regulations that require this. performance. ” The staff has concluded that if an advertisement displays gross IRR starting at a point prior to the time when capital commitments are solicited from investors, net IRR must be displayed from the same initial point in time.
Finally, if the staff is presented with a net IRR that includes the impact of a fund-level subscription facility without including either (i) the net IRR excluding the impact of such facilities, or (ii) , the advisor points out, would be in breach of the general prohibitions in the Marketing Regulations. ) Appropriate disclosures explaining the impact of such facilities on the indicated net performance.
All current FAQs related to the Marketing Regulations are available at https://www.sec.gov/investment/marketing-faq.
