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    Feb. 6, 2025

Grading Gary Gensler: Examination Practices, Enforcement Efforts and Industry Guidance (Part One of Two)

On November 21, 2024, the SEC announced that Chair Gary S. Gensler would step down from the Commission on January 20, 2025, clearing the way for the Trump administration’s pick to fill that role, Paul S. Atkins. As the Commission completes that transition, the time is ripe to consider how well the SEC performed its regulatory functions over the last four years under Gensler and what the private funds industry might reasonably expect from the new administration. To that end, the Private Equity Law Report interviewed several former SEC staff members that are now working in the private funds industry and asked them to grade Gensler’s efforts in multiple key areas on a five-point scale (poor, below average, average, above average and excellent). In addition, the experts were asked to provide insights into positive and negative efforts during Gensler’s tenure as to each topic, as well as to forecast the SEC’s likely approach under the Trump administration. This first article in a two-part series considers the efforts of the SEC’s Division of Examinations and Division of Enforcement, respectively, as well as the quality of industry guidance (e.g., FAQs, risk alerts, etc.) under Gensler. The second article will address the Commission’s rulemaking efforts; culture and operational proficiency; and its relationship with the private funds industry during Gensler’s tenure. See “PE Industry in 2025: Trump Administration’s Likely Impact on Rulemaking, Examinations and Enforcement (Part One of Two)” (Jan. 9, 2025).

Dealing With Deficiencies: Strategies for Responding to the SEC and Drafting Deficiency Response Letters (Part Two of Two)

Successfully responding to a deficiency letter from the SEC’s Division of Examinations (Examinations) requires alacrity, collaboration, consideration, discretion and diplomacy, among other tools and strategies. It is crucial that private fund managers address issues raised in a way that satisfies examiners, dissuades the SEC’s Division of Enforcement from pursuing further action, and avoids saddling the firm with unreasonable or unachievable compliance burdens. This second article in a two-part series offers tips on ways to respond to Examinations staff upon receiving a deficiency letter, considerations when drafting a deficiency response letter, strategies for implementing the enumerated remedies, and guidance for how and whether to disclose either letter to LPs. The first article covered the exam and deficiency process, steps fund managers can take before an SEC exam to mitigate damage and preliminary steps managers should take to prepare their response to a deficiency letter after an exam has ended. See “Three Steps in Responding to an SEC Examination Deficiency Letter and Other Practical Guidance for Fund Managers From SEC Veteran and Sutherland Partner John Walsh” (Feb. 13, 2014).

SEC Examinations and Enforcement Staff Identify Targeted Misconduct Under the Marketing Rule (Part One of Two)

The SEC has been emphasizing its efforts to provide more transparency in its regulatory expectations and processes to help registrants comply with their obligations. To that end, the SEC’s recent Compliance Outreach Program included a panel featuring representatives from various teams within the SEC that examined hot regulatory topics relating to private fund managers. Moderated by Jennifer A. Duggins, Assistant Director and Co‑Head of the Private Funds Unit (PFU) in the SEC’s Division of Examinations (Examinations), the panel featured Shane Cox, Regulatory Counsel, PFU; and Michael C. Neus, chief administrative officer, Brevan Howard US Investment Management LP. This first article in a two-part series identifies specific areas of focus for Examinations and the SEC’s Division of Enforcement under Rule 206(4)‑1 of the Investment Advisers Act of 1940, known as the Marketing Rule. The second article will detail problematic practices of private credit funds relating to insider trading and valuations, as well as omnipresent SEC concerns about conflicts arising as to disclosures about, and allocations of, fees and expenses. See “SEC Risk Alert and Accompanying Checklist Explains Examinations Process and Identifies Key Documents to Have Ready” (Nov. 2, 2023).

Dechert and Mergermarket 2025 PE Outlook: Ongoing Fundraising and Liquidity Challenges

Since 2020, Mergermarket and Dechert have conducted annual studies of senior-level PE executives to take the pulse of the industry and its prospects in the coming year. Their 2025 Global Private Equity Outlook (Report) found that, although the volume and value of PE transactions are likely to exceed last year’s levels, PE sponsors are facing ongoing challenges exiting investments and – partly as a result – raising new funds. This article discusses those findings and the portions of the Report covering return expectations, fees and other fund trends; co‑investments; investment exits and other liquidity events; GP‑led secondaries; private credit; and responsible investing. See our two-part series on Dechert and Mergermarket’s 2024 PE survey: “Navigating Fundraising and Regulatory Headwinds” (Jan. 25, 2024); and “Parsing the Ongoing Growth of GP‑Led Transactions and Other Sectors” (Feb. 8, 2024).

Understanding the Implications for Fund Managers of FinCEN’s Final AML Rules (Part Two of Two)

For more than 20 years, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has attempted to impose anti-money laundering (AML) rules on private fund managers by expanding the definition of “financial institution” under the Bank Secrecy Act of 1970 to include certain investment advisers. As far back as 2002, FinCEN has proposed – and then withdrawn – rules that would have required designated investment advisers to, among other things, implement AML programs and file suspicious activity reports. FinCEN was finally successful in August 2024, when it adopted final AML rules (Rules) that, with limited exceptions, apply to all advisers registered or required to register with the SEC under Section 203 of the Investment Advisers Act of 1940, as well as all exempt reporting advisers. This second article in a two-part series examines the key challenges fund managers will face in complying with the Rules and provides the steps they should take. The first article discussed the applicability of the Rules, their key provisions and how they differ from the original proposal. See our two-part series on the 2015 FinCEN AML rule proposal: “How FinCEN’s Proposed AML Rule Will Affect Fund Managers and Other Investment Advisers” (Jun. 30, 2016); and “Steps Fund Managers and Other Investment Advisers Should Take Now to Prepare for FinCEN’s Proposed AML Rule” (Jul. 7, 2016).

Kirkland & Ellis Welcomes Tax Partner in Washington, D.C.

Rodney H. Hill has joined Kirkland & Ellis as a partner in the tax practice group in Washington, D.C. His practice focuses on the tax aspects of transactions, with a particular concentration on fund formation and M&A involving investment fund sponsors. See “Four Distinct Ways to Structure Minority Stake Investments” (Mar. 7, 2024); and “Relevant Criteria for Selecting a GP Stake Partner and Recent Trends in Minority Stake Transactions” (Oct. 19, 2021).

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