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On June 5, 2024, the United States 5th Circuit Court of Appeals issued a decision vacating the SEC private funds rule. The court determined that the SEC failed to justify the necessity and scope of the new requirements in relation to investor protection and market stability. The court’s ruling impacts all aspects of the previously established rule for private equity and hedge funds, effectively nullifying its application.

In recent years, many alternative fund managers have explored ways of enhancing operational productivity. Forward-looking firms have recognized that fund growth leads to increased operational volume, complexity, and operating expenses, and as with most things, one size does not fit all when it comes to outsourcing.

Regulatory change is here for Private Fund Advisers. As of August 23, 2023, the SEC implemented new regulations and updates known as the “Private Fund Adviser Rules” (Rules) under the Investment Advisers Act of 1940. The Rules represent the most notable regulatory influence on Private Funds since 2010. These regulations impact both SEC-registered and unregistered private fund managers.

Due to the increased investor transparency requirements and a heightened need to maintain regulatory compliance in recent years, there has been a shift toward fund managers outsourcing more back-office functions to third-party administrators. In the competitive market space, it’s critical that fund managers complete their due diligence when selecting a fund administrator and factor in key considerations such as technology, experience, servicing capabilities, and cost.

In the competitive landscape of fund administration, technology stands out as a primary differentiator among service providers. As the financial industry evolves and regulatory requirements become more stringent, fund administrators increasingly rely on innovative technological solutions to enhance their offerings and stay ahead of the curve.

In the fast-paced world of private equity, managing investor services efficiently and effectively is crucial for success. However, the demands of fund administration can be overwhelming, and the pressure to face down global headwinds, take advantage of emerging trends, and accelerate growth often falls against a backdrop of fierce competition for investment dollars.