SEC staff releases guidance relaxing certain aspects of marketing and fundraising

Marketing Rule and extracted performance

The SEC’s Division of Investment Management updated its Marketing Compliance Frequently Asked Questions, issued in January 2023 under former SEC chair Gary Gensler. The SEC originally adopted the Marketing Rule (Rule 206(4)-1 under the Advisers Act) in 2020 under former SEC chair Jay Clayton to modernize and replace the older “Advertising Rule” and “Cash Solicitation Rule” that had previously been in effect for decades. The rule, which applies to all RIAs (but not advisers exempt from registration), took effect in November 2022. 

The new guidance states that an RIA may display gross extracted performance of a portfolio in an advertisement without including corresponding net performance of the extract if: 

1. the extracted performance is clearly identified as gross performance;
2. the extracted performance is accompanied by a presentation of the total portfolio’s gross and net performance consistent with the requirements of the rule;
3. the gross and net performance of the total portfolio is presented with at least equal prominence to, and in a manner designed to facilitate comparison with, the extracted performance; and
4. the gross and net performance of the total portfolio is calculated over a period that includes the entire period over which the extracted performance is calculated. 

In the earlier, now superseded guidance, the staff had indicated that RIAs were required to provide side-by-side gross and net extracted performance on an investment-by-investment basis. 

The new guidance addresses marketing materials in which private fund advisers commonly provide performance information about their investment funds. Typically, advisers have disclosed each investment fund’s overall gross and net performance (whether as MOIC, IRR or both). Net performance data excludes certain costs, including management fee, other fund expenses and carried interest distributions allocated to the adviser. Under the prior guidance, fund managers struggled to generate net performance metrics for each individual portfolio investment within a single fund and to develop calculation methods that allocated fees, expenses and carried interest on an investment-by-investment basis in a fair and reasonable manner. 

In addition to eliminating the requirement to display net extracted performance on an investment-by-investment basis, the staff’s new guidance clarifies the status of certain portfolio or investment characteristics that may or may not be deemed “performance” under the Marketing Rule (which does not define the term “performance”). Such characteristics may include the following: yield, coupon rate, contribution to return, volatility, sector or geographic returns, attribution analyses, the Sharpe ratio, the Sortino ratio, and other similar metrics. In particular, the staff noted that calculating such characteristics net of fees and expenses may be impossible or could lead to misleading or confusing results. Accordingly, the new guidance permits advisers to present one or more gross characteristics of a portfolio or investment without including corresponding net characteristics, subject to a set of four conditions almost identical to those described above. 

Rule 506(c) and verifying accredited investor status

In addition, on March 12, 2025, the Division of Corporate Finance updated its Compliance and Disclosure Interpretations (the C&DIs) relating to rules and regulations promulgated under the Securities Act, including new guidance on Rule 506(c), part of a series of rules known as Regulation D, which provide issuers with safe harbors that confirm their ability to rely on private offering and limited offering exemptions from securities registration under the Securities Act. 

The SEC adopted Rule 506(c) in 2013 as mandated by the JOBS Act to give issuers a new safe harbor under Rule 506(c) of Regulation D that permits general solicitation and general advertising in private offerings conducted pursuant to Rule 506. Before the adoption of Rule 506(c), fund sponsors were required to conduct private offerings in compliance with a prohibition on general solicitation and general advertising under Rule 502(c) of Regulation D. As a condition to reliance on the expanded safe harbor, Rule 506(c) requires that issuers take reasonable steps to verify that each purchaser of securities is an “accredited investor” as defined under Rule 501. Rule 506(c)(2)(ii) provides several ways for an issuer to verify accredited investor status, including review of a prospective investor’s bank statements or other financial information. More commonly, however, investors may certify their accredited investor status through written confirmation by a licensed attorney, certified public accountant, RIA or registered broker-dealer. In 2020, the SEC amended Rule 506(c) to permit an issuer, upon verifying a purchaser’s accredited investor status, to rely on such prior verification for a five-year period. 

The new guidance reiterates that the rule’s verification methods remain non-exclusive and non-mandatory. As part of Rule 506(c) accredited investor verification analysis, the staff added that issuers should consider the following factors:

• the nature of the purchaser and they type of accredited investor that the purchaser claims to be;
• the amount and type of information that the issuer has about the purchaser; and
• the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as a minimum investment amount.

The staff underscored that these factors should be considered in an interconnected manner and are intended to help guide an issuer in assessing the reasonable likelihood that a purchaser is an accredited investor. 

On the same day, the SEC released a no-action letter (Latham & Watkins LLP (avail. Mar. 12, 2025)) stating that it is reasonable to conclude that an issuer has taken reasonable steps to verify accredited investor status when an offering requires a high minimum investment amount: 

If the terms of the offering require a high minimum investment amount and a purchaser is able to meet those terms, then the likelihood of that purchaser satisfying the definition of accredited investor may be sufficiently high such that, absent any facts that indicate that the purchaser is not an accredited investor, it may be reasonable for the issuer to take fewer steps to verify or, in certain cases, no additional steps to verify accredited investor status other than to confirm that the purchaser’s cash investment is not being financed by a third party. 

While the no-action letter and new guidance do not specify particular dollar amounts for an offering’s minimum investment amount, the interpretations in practice relax the verification requirements by emphasizing that accredited investor verification under Rule 506(c) is always a facts-and-circumstances analysis, and that there may be some circumstances where the issuer’s knowledge of certain purchasers could alone be sufficient to verify accredited investor status. 

Conclusion

Taken together, the new interpretations should be viewed as favorable to private fund managers in terms of marketing and capital-raising activities. 

Although confirmation hearings for the SEC’s new chair did not begin until March 27, the SEC staff under acting chair Mark Uyeda has nonetheless pursued new guidance and initiatives in the first two months of the Trump administration. In addition to the new guidance described above, the SEC has created a new Crypto Task Force to provide clarity to the application of federal securities laws to the crypto asset market and to recommend policy measures both to foster innovation and protect investors. Paul Atkins, who has been nominated as the next SEC chair, previously served as an SEC commissioner between 2002 and 2008. Uyeda also delivered remarks in February suggesting the SEC might revisit the definition of “accredited investor.” 

We continue to monitor ongoing SEC action, and we will provide updates as additional guidance or rule amendments or proposals emerge on these and other salient topics. 

Authored by Adam Brown, Parikshit Dasgupta, Brian Diamond, Brayton Dresser, Richard Madris, Bryan Ricapito, David Winter, Henry Kahn, Kevin Lees, and Madelyn Healy Joseph.