SEC Regulatory Update: New Fund Marketing Rule Implications for GPs

The Securities and Exchange Commission has intensified its focus on private fund marketing practices, issuing new guidance and enforcement actions that have significant implications for general partners across the venture capital and private equity landscape. The Marketing Rule, which became effective in late 2022, established comprehensive requirements for advertisement content and performance presentation. Recent enforcement actions indicate the SEC is actively monitoring compliance and willing to pursue violations, even among smaller fund managers. Performance presentation requirements have received particular scrutiny. The rule mandates that advertisements presenting gross performance must also provide net performance with equal prominence. Hypothetical performance, when used, requires enhanced disclosures about assumptions and limitations. Testimonials and endorsements, now permitted under the new framework, come with significant compliance obligations. Required disclosures must accompany any third-party endorsements, and compensation arrangements must be clearly disclosed. Investor testimonials require careful review to ensure they present balanced perspectives. Third-party ratings present unique challenges. Funds using ratings in marketing materials must disclose the date of the rating, rating methodology transparency, and any compensation provided to the rating organization. Selective use of ratings that present favorable perspectives while omitting unfavorable ones violates fair and balanced presentation requirements. The SEC has also clarified expectations around predecessor performance. Managers presenting track records from prior firms must ensure appropriate disclosure about the nature of those historical relationships and the degree to which past performance reflects their individual contributions versus team or firm resources. Social media presents emerging compliance considerations. The informal nature of these platforms does not exempt content from marketing rule requirements. Posts that could be viewed as advertisements require the same compliance oversight applied to traditional marketing materials. Compliance infrastructure expectations have increased accordingly. The rule requires reasonable policies and procedures to prevent violations, including review and approval processes for marketing materials. Documentation of compliance efforts has become essential for demonstrating good faith efforts to meet regulatory requirements. For general partners, these developments require proactive review of existing marketing practices and ongoing attention to evolving regulatory expectations. Investment in compliance capabilities, while representing additional cost, provides protection against enforcement risk and supports institutional credibility with sophisticated limited partners.