^{Articles |} Asset Management Regulatory Update

Second Quarter 2025

Table of Contents

• SEC Withdraws 14 Rule Proposals
• SEC Signals Expanding Retail Investor Access to Private Funds Through Certain Fund of Funds
• SEC Extends Compliance Deadline for Form N-PORT
• SEC Extends Compliance Deadline for Form PF
• SEC Charges Individual and His Advisory Firm with Fraud and Other Violations

SEC WITHDRAWS 14 RULE PROPOSALS

In June 2025, the U.S. Securities and Exchange Commission (the “SEC” or the “Commission”) announced that it was withdrawing 14 rule proposals (the “Proposals”) issued during the prior administration. A table detailing each withdrawn Proposal and the applicable SEC division is listed below.

The final rule announcing the SEC’s withdrawal of the Proposals included that the Commission is withdrawing the Proposals because it no longer intends to issue final rules on the Proposals. In the event the Commission determines to pursue regulatory action in the areas covered by a Proposal, the Commission will publish a new proposed rule or other issuance.

SEC SIGNALS EXPANDING RETAIL INVESTOR ACCESS TO PRIVATE FUNDS THROUGH CERTAIN FUND OF FUNDS

In remarks at the Practicing Law Institute’s SEC Speaks Conference held in Washington D.C. on May 19-20, 2025 (the “SEC Speaks Conference”), the staff of the SEC indicated that they have reconsidered a long-standing staff position that prevents certain closed-end funds from investing in private funds, opening the door for registered funds of private funds to be offered broadly to “retail investors.” Generally, retail investors are those who do not satisfy the “accredited investor” standard under Rule 501 of Regulation D under the Securities Act of 1933. The accredited investor test currently includes, among others, individuals who meet certain professional qualifications or have a net worth over US $1 million (excluding their primary residence) or income over US $200,000 (or US $300,000 if they file jointly with a spouse or partner) in each of the previous two years.

Since 2002, the SEC staff has taken the position that closed-end funds investing in underlying private funds (like hedge funds and private equity funds) must either: (1) limit such investments to no more than 15% of its assets or (2)(a) restrict sales of its own shares to investors that satisfy the accredited investor standard and (b) impose a minimum initial investment requirement of $25,000. Underlying private funds for these purposes are generally defined as investment companies but for the exclusions specified in sections 3(c)(1) or 3(c)(7) of the Investment Company Act of 1940.

Historically, the staff’s position was enforced through the SEC’s registration statement review process. For certain closed-end funds investing in private funds, the SEC required this limitation in their registration statements to declare them effective.

In a speech at the SEC Speaks Conference on May 19, 2025, SEC Chairman Paul Atkins called for the SEC to reconsider the 23-year-old policy regarding investments by closed-end funds in private funds to expand retail access to private markets and “give all investors the ability to seek exposure to a growing and important asset class, while still providing the investor protections afforded to registered funds.” 

In contrast to Chairman Atkins’s speech, Commissioner Caroline Crenshaw’s remarks at the SEC Speaks Conference on May 19, 2025, highlighted the risks inherent in removing the private fund investment limitation policy for retail investors, stating that “private markets are inherently riskier, entail less disclosure, and require a higher tolerance for volatility and illiquidity,” and warning that “private markets are not designed for the average Main Street investor.”

SEC Director of Investment Management Natasha Vij Greiner participated in a panel discussion with senior SEC staff members the next day at the SEC Speaks Conference. During this discussion, she announced that starting May 19, 2025, the SEC staff will no longer provide comments during the registration statement review process seeking to limit the ability of retail investors to invest in registered closed-end funds that invest more than 15% of their net assets in underlying private funds. Director Greiner noted that the “decision was made based on the ever-evolving industry, and we hope that this shift will provide investors with new investment opportunities to the extent they align with their risk tolerance and investment objectives.”

Without the above investment requirements imposed by accredited investor limitations, retail investors may gain greater access to private market exposure as the new staff position expands the universe of products that may be offered to retail investors who do not satisfy the accredited investor criteria.

Without the above minimum investment and accredited investor requirements, retail investors may gain greater access to private market exposure as the new staff position expands the universe of closed-end fund products and offerings available to them.

SEC EXTENDS COMPLIANCE DEADLINE FOR FORM N-PORT

In August 2024, the SEC adopted amendments to Form N-PORT. Form N-PORT is generally used by a mutual fund or certain exchange-traded funds (other than a money market fund or a small business investment company) to file monthly portfolio holdings risk metrics, and other data about the fund’s operations. The amendments require registered funds to file Form N-PORT on a monthly basis, rather than quarterly.

In April 2025, the SEC extended the compliance deadline for the Form N-PORT monthly filing requirement. For registered funds with $1 billion or more in assets as of the end of their most recent fiscal year, the filing deadline was extended from November 17, 2025 to November 17, 2027. For smaller funds (funds with less than $1 billion in assets as of the end of their most recent fiscal year), the filing deadline was extended from May 18, 2026 to May 18, 2028.

The compliance deadline may be further revised following the review process mandated by the January 2025 executive order by President Trump. Under the executive order, federal regulations that are not yet effective are to be paused to “[review] any questions of fact, law, and policy that the rules may raise.”

The compliance deadline for reporting requirements under Form N-CEN, however, has not been extended. Registered investment companies must file Form N-CEN on an annual basis, and the form includes basic fund information including the fund’s structure, service providers, and compliance practices.

The new reporting requirements under Form N-CEN, which were adopted by the SEC mandate the disclosure of liquidity service providers. Such disclosure must include the providers’ name, identifying information, the location and the asset classes for which they supply liquidity classifications, and a specification of whether the provider is affiliated with the fund or adviser. The compliance deadline for these new reporting requirements is November 17, 2025.

SEC EXTENDS COMPLIANCE DEADLINE FOR FORM PF

In June 2025, the SEC, together with the U.S. Commodity Futures Trading Commission, voted to extend the compliance deadline for amendments to Form PF. Certain investment advisers to private funds must file Form PF with the SEC and the data (which includes information about the structure, activities, and risk profiles of private funds) is used for the purpose of monitoring systemic risk in the financial system.

The amendments to Form PF were adopted on February 8, 2024, and the original compliance deadline was March 12, 2025. The compliance deadline was previously extended to June 12, 2025. The deadline was further extended to October 1, 2025.

SEC CHARGES INDIVIDUAL AND HIS ADVISORY FIRM WITH FRAUD AND OTHER VIOLATIONS

In March 2025, the SEC announced that it filed charges against an individual (“Defendant 1”) and his investment advisory firm (“Defendant 2” and together with Defendant 1, the “Defendants”) in connection with the operation of a mutual fund (the “Fund”).

According to the SEC’s complaint (the “Complaint”), since the Fund’s inception in 1998 until February 27, 2020, the Fund’s statement of additional information (the “SAI”) disclosed that the Fund had a fundamental investment policy that the Fund may not invest more than 25% of its total assets in securities of companies principally engaged in any one industry (the “Concentration Policy”), which could not be changed without the approval of a majority of the outstanding voting securities of the Fund. The Complaint noted that while the Fund’s SAIs filed in 2021, 2022, and 2023 reflected that the Fund’s Concentration Policy was subject to a 50% limit, the Defendants did not obtain shareholder approval to change the Fund’s Concentration Policy.

In 2018 and 2019, the SEC’s Division of Examinations (“EXAMs”) examined the trust, of which the Fund was a series (the “Trust”). At the close of the examination, EXAMs staff sent Defendant 1 a deficiency letter (the “Deficiency Letter”) detailing certain deficiencies and weaknesses identified by EXAMs staff, including that the Fund had violated its 25% Concentration Policy and used inconsistent industry classifications in different reporting periods. According to the Complaint, the Deficiency Letter also included that EXAMs staff had reviewed minutes of a meeting of the Board of Trustees of the Trust (the “Board”) indicating that the investment advisory agreement and administration contract between the Trust and Defendant 2 were “pre-approved” as of October 1, 2018, but that no documentation accompanied the minutes to substantiate the Board’s renewal of the contracts.

From 2019 to 2021, the SEC’s Division of Enforcement investigated the Defendants, focusing on many of the topics covered by the Deficiency Letter. Without admitting or denying the Commission’s findings, the Defendants consented to the entry of an order in 2021 (the “2021 Order”) that found that the Defendants violated the Concentration Policy between July 2017 and June 2020 by concentrating more than 25% of the Fund’s total assets in one industry, and in doing so, Defendants committed fraud and breached fiduciary duties to the Fund (among other securities law violations). The Complaint alleges that Defendants continued to invest more than 25% of the Fund’s total assets in a single company and in a single industry during certain periods after the 2021 Order.

The Complaint further alleges that between November 24, 2021 through at least June 23, 2024, the Defendants engaged in two sets of misconduct with respect to the Board, including that (a) the Defendants failed to provide or withheld key information from the Board, including information “reasonably necessary for the Board to evaluate the terms of [the firm’s] advisory contract,” which was not put to a vote and which Defendant 1 misrepresented in the Fund’s filings, and misleading the Board about the Defendants’ past securities law violations and (b) that Defendants hired an accountant to audit each series of the Trust, without first obtaining Board approval, as required by the Investment Company Act.

As further detailed in the Complaint, the SEC is requesting the court to enter a final judgment: (i) permanently enjoining the Defendants and their agents, servants, employees and attorneys and all persons in active concert or participation with any of them from violating, directly or indirectly, certain federal securities laws, (ii) ordering the Defendants disgorge all ill-gotten gains they received directly or indirectly, with pre-judgment interest thereon, as a result of the alleged violations under certain sections of the Exchange Act and Investment Company Act of 1940, (iii) ordering the Defendants to pay civil monetary penalties; and (iv) and any other and further relief the court may deem just and proper.

UPCOMING CONFERENCES

*Host Organization Key: Mutual Fund Directors Forum (“MFDF”), Independent Directors Council (“IDC”), and Investment Company Institute (“ICI”)

© 2025, Davis Graham & Stubbs LLP. All rights reserved. This newsletter does not constitute legal advice. The views expressed in this newsletter are the views of the authors and not necessarily the views of the firm. Please consult with your legal counsel for specific advice and/or information.

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