Through the Looking Glass (Inside the World of Private Funds)
By Gisella Rivera
This article seeks to present how recent regulatory initiatives benefit investors who have invested, or are looking to invest, in private funds. Private fund industry participants, particularly compliance officers of private fund advisers, closely monitor proposed regulations to determine how such proposals affect the business and operations of private fund advisers. Compliance officers may find viewing regulatory initiatives from an investor’s perspective advantageous in effectively implementing and designing policies and procedures in response to regulatory changes.
“How nice it would be if we could only get through into Looking-glass House!”
To some extent, investors must have echoed Alice’s feelings when viewing the world of private funds through the lenses of advisers to private funds.
The world of private funds is just that… private… so private that the Dodd-Frank Act described it as a “shadow financial system.” Investors who want to invest in private funds do so by appointment only. Securities of these private funds are offered generally through a private placement which requires that the information on the offering is not made available to the general public. Similarly, information on private fund advisers who are exempt from registration with the SEC is generally not available to the public. Accordingly, in most cases, an investor looking to invest, or who has invested, in a private fund managed by an adviser exempt from SEC registration would rely, to a great extent, on the adviser’s agreement to provide information regarding itself and the private fund it manages…