SEC Provides New Guidance on Net Performance Presentation Requirements, Allowing for More Flexibility
On the 19th of March in the year 2025, the team at the U.S. Securities and Exchange Commission (SEC) released updated guidance on the Advisers Act Marketing Rule, easing the requirements for when an SEC-registered private fund advisor is obligated to present net performance.
This fresh guidance now allows private fund advisors to revert to the traditional practice of displaying gross-only performance for specific subsets of their investments in advertisements such as Private Placement Memorandums (PPMs) and pitch decks. However, the advertisement must also include Marketing Rule-compliant performance presentations for the total portfolio or composite. Furthermore, express additional guidelines have been given on the use of gross performance and other characteristics related to investments. For instance, gross-only performance metrics can be shown in portfolio company case studies or discussions of the fund’s sector performance, with a cross-reference to the specific section containing the Marketing Rule-compliant net fund performance presentations.
Private fund advisors wishing to implement this new guidance should take into account the Marketing Rule’s requirements concerning hypothetical performance. For example, net calculations are mandatory for targets, projections, and composites that constitute hypothetical performance. Therefore, advisors must review their compliance policies and procedures to ensure any required updates are made, such as revising the obligation to present net performance for individual investments or extracted performance if intending to rely on the new guidance.
Regarding the performance extracts, the guidance allows private fund advisors to display the gross performance of one or more investments in a portfolio without the necessity of presenting the net performance. To comply with this, the extract must clearly state that it reflects gross performance and should be accompanied by or cross-reference a Marketing Rule-compliant performance presentation for the total portfolio or composite to which the extract pertains. Additionally, the Compliant Presentation must be given equal prominence to the extract and should cover the same time period as the extract.
Moving on, the guidance also addresses portfolio characteristics, allowing private fund advisors to present “gross” investment characteristics without the need for a corresponding net number if specific conditions are met. These conditions are similar to those related to extracts, ensuring that the presentation of the gross characteristic is accompanied by a Compliant Presentation and covers the entire period over which the characteristic is calculated.
This guidance is expected to have a minimal impact on most private fund sponsors’ disclosure practices. The Staff did not take a firm stance on whether certain investment characteristics should be considered as “performance” under the Marketing Rule, as many sponsors may not view these characteristics in this light. However, individuals are encouraged to reach out to legal consultants at Kirkland IFG for further advice on determining whether particular characteristics constitute performance under the Marketing Rule.
