Private funds radar - July 2025

The SEC has issued guidance, via a “no action letter”, that may open up a new route for private fund sponsors to raise capital in the US. 

Typically, sponsors raising US capital do so in reliance on Rule 506(b) of Regulation D under the Securities Act of 1933. This rule prohibits any “general solicitation or general advertising”, meaning sponsors must be extremely careful about making any public comments relating to the fundraising. 

An alternative rule – Rule 506(c) – does permit general solicitation and general advertising, but requires sponsors to take reasonable steps to verify that any investors who invest are “accredited investors”. However, uncertainty as to what would be considered “reasonable steps” for these purposes resulted in sponsors preferring to use Rule 506(b). 

The SEC’s new guidance, however, confirms that if: 

1. there is a minimum investment requirement of $200,000 for individuals and $1,000,000 for legal entities;
2. each investor represents that (a) it is an accredited investor and (b) the minimum investment amount is not “financed in whole or in part by any third-party for the specific purpose of making the particular investment”; and
3. the sponsor has no actual knowledge that either 1 or 2 above is incorrect, 

then a sponsor “could reasonably conclude that it has taken reasonable steps to verify” that the investors are accredited investors. 

As this helpful note by the US law firm Choate states, “[in] practice, this means that a fund sponsor could raise capital for a private fund in reliance on Rule 506(c) and participate in media interviews or industry events, post on social media, and issue sponsor- or fund-related press releases without having to strictly vet communications to avoid “conditioning the market” for securities of the private fund”.

This could prove a significant opportunity for sponsors, opening up the possibility of publicising a fundraising (for example, by talking openly about it at conferences, or referring to it on publicly-available websites or social media platforms – none of which would be allowed under Rule 506(b)) whilst still remaining exempt under Regulation D from registration under the Securities Act. 

Sponsors considering a Rule 506(c) offering will, however, need to consider the possible implication of general solicitation and/or advertising in the US for their fundraisings in other jurisdictions and on their ability to rely on reverse solicitation. For example, in many EU member states, it is only possible to rely on reverse solicitation if there has been no direct or indirect promotion of the fund by the sponsor in that member state. It is likely that references to the fundraising on publicly available platforms would be seen as promotion of the fund for these purposes (unless, perhaps, firewalled and so only accessible by users in the US). 

Sponsors who raise capital in the US will be familiar with the need to ensure that fund offering materials include both gross and net investment performance, with each given equal prominence. 

On a portfolio-wide basis, this is typically unproblematic. However, when highlighting a single investment or subset of investments (e.g. as case studies), this has proved more difficult (and potentially misleading), given the challenge and judgement calls involved in allocating fund-wide expenses and liabilities (including management fees and carried interest) to specific investments, for the purposes of calculating the net performance of those particular investments. 

In an updated Q&A, the SEC has issued helpful guidance to address this point. Specifically, the SEC states that a sponsor can display just the gross performance of a single investment or a subset of investments, which it refers to as “extracted performance”, as long as: 

• the extracted performance is clearly identified as gross performance;
• the extracted performance is accompanied by a presentation of the gross and net performance of the “total portfolio” (i.e. the fund portfolio of which the extracted performance forms part);
• 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
• 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. 

ILPA, the institutional limited partners association, is undertaking a project to develop an updated version of its capital call and distribution template. 

The existing template has remained unchanged since 2011, and is widely used by sponsors (either “as is” or to inform their own bespoke drawdown/distribution notices). 

ILPA plans to release the updated version in September. Sponsors who have committed to using ILPA templates should review the new template once available and consider whether it will require them to update any of their operational processes.

On 5 June, the Government published its latest policy paper on reforming carried interest taxation. The paper:

• confirmed, in response to the consultation that concluded in January 2025, that the reformed carried interest regime will not be subject to new qualifying conditions (beyond the extension of the Income-Based Carried Interest (IBCI) rules to all carried interest);
• provided an update on how the Government’s thinking on the territorial aspects of the reformed regime has developed since the Autumn Budget 2024, including announcing several new statutory rules that will limit the circumstances in which the UK taxes non-residents in respect of carried interest; and
• provided some detail on where changes will be made to the average holding period aspects of the IBCI rules to assist certain strategies, particularly credit funds and secondary funds.

Our paper examines these new developments.

Following on from the 2025 Mansion House Accord (an industry-led agreement for defined contribution pension providers to invest 10% of their default funds in private markets (with 5% of that focused on UK investments) by 2030), the Government’s plans for pension reform have continued, with the publication on 5 June of a new Pension Schemes Bill.

There are three key themes that stand out for the private capital industry from the Government’s plans, which can be summarised as:

• scale and consolidation via a series of mega-funds and mega-pools of pension capital;
• increasing investments in private assets and investments, particularly in the UK; and
• developing greater expertise and sophistication to shift pension industry culture from a focus on cost to delivering better investment performance.

We have published a paper looking at how these pension reforms might affect the private capital industry. 

The FCA published the findings of its review into private market valuation practices. The review itself was prompted by the FCA’s concerns about sponsors’ judgement-based approaches to valuing private assets and the risk of inappropriate valuations increasing the risk of harm to investors and market integrity. 

The FCA’s findings – relevant to all sponsors investing in private assets, including private equity, venture capital, private debt and infrastructure – urge firms to consider and make improvements in:

• the governance of their valuation processes;
• identifying, documenting, and addressing potential conflicts in their valuation processes;
• ensuring functional independence for their valuation processes; and
• incorporating defined processes for ad hoc valuations.

Our detailed summary of the FCA’s findings is available here, and our thoughts on valuation best practice can be found on our dedicated Private Capital Solutions website.

Importantly, sponsors should be aware that the findings are relevant not just to the valuation function and process itself, but also to the use of valuations in investor marketing documents and how those valuations are presented (and how potential valuation-related conflicts are disclosed). Sponsors currently in the market or about to launch should ensure their marketing documents take the FCA findings into account. 

The process of revamping the UK regime for regulating alternative investment fund managers (AIFMs) – often referred to as UK AIFMD II – is well underway. 

A set of initial proposals was published for consultation by HM Treasury and the FCA in April. The headline proposal, which garnered a lot of attention, was the abolition of the “full-scope” / “sub-threshold” AIFM distinction, and in its place a more tailored approach to AIFM regulation based on factors such as their size, investment activities, investor base and risks. 

This aspect of the proposals envisages a single set of rules, applied proportionately to AIFMs by reference to their size, with specific rules either disapplied where not relevant to the AIFM in question or applied only to AIFMs carrying out specific activities. 

To determine an AIFM’s size, the proposals suggest a three-tier model: large AIFMs would be those with NAV over £5bn; mid-sized AIFMs with NAV over £100m up to £5bn; and small AIFMs with NAV up to £100m. 

Our note provides more detail on the proposals, including on other suggested changes to the regime. The changes coming down the line will affect all UK AIFMs; Macfarlanes has been heavily involved in the industry responses to the consultation. We will continue to monitor developments and keep our clients updated. 

The new “reserved investor fund” (RIF) has been available in the UK for three months now. 

Generally seen as an onshore UK equivalent of the offshore unit trust (such as the Jersey property unit trust (JPUT)), the RIF can be used by private fund sponsors pursuing various strategies. However, we expect the RIF will principally be an option for sponsors pursuing UK commercial real estate strategies to consider (as a potential alternative to the traditional English or Scottish limited partnership), particularly if there is demand for a fully onshore UK fund structure. 

Our short introduction provides more detail, including a brief summary of the RIF’s regulatory and tax features.

An investor has launched a High Court action against the sponsor of a private fund, in connection with the sponsor’s designation of the investor as a “defaulting investor” under the fund’s limited partnership agreement. The fund itself is a private fund limited partnership registered in England under the Limited Partnerships Act 1907.

At this stage, it is uncertain whether the action will proceed to trial. However, if it does, the court may be asked to consider questions relating to: (i) the validity of drawdown notices issued by a sponsor to a fund’s investors; (ii) the exercise of a sponsor’s discretion to designate an investor as a defaulting investor; and (iii) whether forfeiture (in whole or in part) of a defaulting investor’s interest constitutes an unenforceable penalty.

As such, this could develop into one of the most significant private funds cases in recent times, and we will continue to monitor its progress. 

The Financial Action Task Force (FATF) has published an updated version of its list of jurisdictions under increased anti-money laundering monitoring – more commonly known as the “grey list”. 

Importantly, the grey list now includes the British Virgin Islands (BVI). Sponsors with BVI structures are therefore likely to find that those structures will now be subjected to increased AML and due diligence measures from counterparties and service providers. 

However, for the time being at least, this should not have any immediate implications for sponsors with BVI AIFMs or AIFs from accessing the EU national private placement regimes (NPPRs) under article 42 of AIFMD – noting that it is always open to individual EU member states to impose stricter conditions than those specified in article 42, meaning that it is possible that individual member states may close off their NPPRs to BVI-based AIFMs and AIFs. We will continue to monitor this to see if any member states take such steps. 

The Guernsey Financial Services Commission (GFSC) has significantly revised the rules governing the Guernsey private investment fund (PIF) regime. 

Among the key changes are an expansion in the categories of eligible investors (which now include, amongst others, high net worth investors, UK professional investors, EU professional investors and US accredited investors) and removing the caps on the numbers of investors and offerees. These changes in particular mean that PIFs are now available to more categories of investor and in greater numbers, significantly increasing their appeal. 

This note by Mourant highlights these and other changes to the PIF regime.