On Feb. 9, 2022, the U.S. Securities and Exchange Commission (SEC) proposed a series of new rules under the Investment Advisers Act of 1940 (the Advisers Act) that are applicable to advisers to private funds (the Proposed Rules). The Proposed Rules, which number 341 pages, are intended to provide investors in private funds with increased transparency regarding expenses and performance, but would affect CLO securitizations by imposing new disclosure requirements and expenses on collateral managers for CLOs. Many CLO managers are thinly capitalized so the Proposed Rules raise potential issues for CLO securitizations.

The SEC notes in the release for the Proposed Rules that there are currently 5,037 registered private fund advisers with over $18 trillion in private fund assets under management. The Proposed Rules would (1) require registered investment advisers (RIAs) to private funds to provide transparency to their investors regarding the cost of investing in private funds and the performance of such funds, (2) require an RIA to a private fund to obtain an annual financial statement audit of each private fund it advises and, in connection with an adviser-led secondary transaction, a fairness opinion from an independent fairness opinion provider, (3) prohibit all private fund advisers (registered and non-registered) from engaging in certain sales practices, conflicts of interest, and compensation schemes, and (4) prohibit preferential treatment to certain investors in a private fund, unless the adviser discloses such treatment to other current and prospective investors.