SEC Addresses Principal Transactions Private Fund Advisers

By: Jessica Forbes, Terrance J. O'Malley

This memorandum discusses a no-action letter issued by the SEC clarifying its position regarding the treatment of private funds as principal accounts for purposes of Section 206(3) of the Advisers Act. The letter states that a private fund will not be viewed as a principal account of an adviser where the adviser and its control persons own 25% or less of the fund. The SEC also reminded advisers that cross transactions, including those involving private funds in which an adviser and its personnel have an ownership interest, present the opportunity for significant conflicts of interest. Certain issues regarding ownership percentages that need further clarification are addressed and compliance-related steps for investment advisers are laid out.

Additional Information