Share = Private Placement
Private equity funds are regulated under federal laws designed to protect investors.
The private equity industry in the United States is regulated by the Securities and Exchange Commission’s implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Under US Investment Advisers Act of 1940 (the Advisers Act), the Securities and Exchange Commission (SEC) has the authority to regulate investment advisers, defined as any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities.
Investment advisers may also be subject to regulatory requirements at the state level
The Investment Company Act of 1940 requires all funds to register with the SEC to meet certain operating standards and to deliver information to investors; the Securities Act of 1933 requires registration of the fund’s shares and the delivery of a prospectus to investors who purchase shares in the IPO; and the Securities Exchange Act of 1934 regulates the secondary market trading of the fund’s shares and establishes antifraud standards governing such trading.
The Investment Advisers Act of 1940 regulates the conduct of fund investment managers and requires them to register with the SEC.
All funds must provide a written prospectus containing complete disclosure about the fund when its shares are initially offered to the public.
Following the IPO, other disclosure documents, including the annual and semiannual reports and the proxy statement, provide information to investors.
The SEC conducts inspections of fund operations to determine compliance with applicable laws and SEC regulations.
There are no particular educational or experience requirements imposed by law on investment advisers, although the education and experience of certain of an investment adviser’s personnel are disclosable items in Form ADV.
As a matter of market practice, the required experience level of an investment adviser’s management team will be dictated by the demands of investors.
If required to register as a broker-dealer with FINRA, a private equity fund sponsor would need to satisfy certain standards in connection with obtaining a registration (eg, no prior criminal acts, minimum capital, testing, etc). In addition, broker-dealers are subject to a prescriptive set of rules as well as certain conduct requirements including Regulation Best Interest.