SEC Backtracks On Net Performance Requirements In New Marketing Rule FAQs

On March 19th, the staff of the Securities and Exchange Commission (the “SEC”) issued two new FAQs under the Marketing Rule (Rule 206(4)-1 under the Investment Advisers Act of 1940) that will allow investment advisers to (i) provide gross performance for individual investments or a group of investments in a private fund or other portfolio (an “extract”) without also presenting individual net performance and (ii) disclose certain portfolio or investment characteristics (e.g., yield) as a “gross” number without a corresponding net number. In both circumstances, the adviser will be required to clearly label that the gross number is “gross” and also present the fund-level or portfolio-level gross and net performance as detailed below.¹ These FAQs represent a much appreciated walk back of an FAQ that had been issued two years prior that required that every “gross” performance number include a corresponding “net” performance even for individual investments within a portfolio