The SEC’s new private fund rules bring a wave of changes for asset management firms. Compliance with the rules requires robust reporting and detailed documentation from accounting teams, putting a strain on traditional quarterly close processes at a time when staff are already under pressure from talent shortages, artificial intelligence (AI) disruptions, and evolving Office of the CFO (OCFO) responsibilities.
To navigate these new regulations efficiently, asset management leaders must approach the close more holistically from the perspective of people, process, data, and, for the purposes of this post, technology. That’s where solutions like FloQast come in.
Understanding the Impact of the Rules
The new rules introduce stricter reporting requirements for private fund advisors, including:
- Enhanced disclosures: More detailed disclosures around fees and expenses, portfolio holdings, and side letters.
- Preferential treatment prohibition: Restrictions on providing preferential information to certain investors.
- Valuation requirements: Increased scrutiny on valuation methodologies used for assets.
These requirements translate to a heavier workload during the close process, demanding more data-gathering, reconciliation, and analysis. Asset managers should institute a new, automated close process at least two cycles in advance of needing to comply with the rules to ensure teams can confidently achieve deadlines and are comfortable with new processes.
Additionally, accounting staff should consider which close tasks don’t necessarily need to occur quarterly and could instead be done monthly or yearly, thus lightening the load to comply with the Quarterly Statement Rule.
When Do the Rules Take Effect?
| Rule | Timeframe |
|---|---|
| Quarterly Statement Rule | 18 months after the date of publication in the Federal Register. |
| Private Fund Audit Rule | 18 months after the date of publication in the Federal Register. |
| Advisor-Led Secondaries Rule | For advisers with $1.5B or more in private funds assets under management, 12 months after the date of publication in the Federal Register; for advisers with less than $1.5B in private funds assets under management, 18 months after the date of publication in the Federal Register. |
| Restricted Activities Rule | For advisers with $1.5B or more in private funds assets under management, 12 months after the date of publication in the Federal Register; for advisers with less than $1.5B in private funds assets under management, 18 months after the date of publication in the Federal Register. |
| Preferential Treatment Rule | For advisers with $1.5B or more in private funds assets under management, 12 months after the date of publication in the Federal Register; for advisers with less than $1.5B in private funds assets under management, 18 months after the date of publication in the Federal Register. |
| Compliance Rule | Required 60 days after publication in the Federal Register. |
FloQast: Accelerating Compliance With the New Rules
FloQast, a leading finance and accounting platform, helps organizations streamline and manage the financial close, and offers features specifically designed to address the challenges presented by the SEC’s new private fund rules:
- Automated workflows for tasks such as reconciliation, data collection, and journal entry preparation, significantly reducing close time.
- Real-time visibility into the close process, allowing management to identify and address potential roadblocks before they delay the close.
- Centralized communication between all parties involved in the close, ensuring everyone is on the same page and working toward a timely completion.
- Improved audit trail of all activity during the close process, demonstrating adherence to compliance requirements.
- Customization and flexibility allowing asset management firms to tailor the software to their specific workflows and reporting needs.
- Enhanced portfolio and fund management that improves financial data integrity and standardizes workflows for fund reporting, fund operations, and requests for financial requests, which peak during close.
Collectively, these capabilities grant close teams a better workload balance during high-stress cycles, reduce the probability of project failure, and expedite implementation time-to-value.
Implementation Considerations
A successful implementation requires careful planning, especially for a tool that will significantly influence compliance, investor reporting, and internal operations. The following components should be top of mind:
- Change management: Prepare for, manage, and reinforce change to accelerate user adoption of the new tool. This can be done through a Transformation Management Office (TMO) or other type of framework to ensure forward momentum with FloQast.
- Data migration and integration: Migrating existing close data and integrating the platform with current systems will take months and might also require cross-training or upskilling employees for certain tasks.
- Scalability: Customization of workflows and reports to suit specific needs and compliance requirements is key – now and in the future. As future SEC or industry rules are announced, today’s technology must be configured to new requirements.
- Additional use cases: While tools like FloQast can fuel close optimization, look for other ways to maximize the benefits and use cases of the tool throughout the accounting function. This includes FP&A, SOX, audit, and IPO readiness, among others.
For expert support acting on the private fund rules and implementing technology to make compliance easier, contact Biovell .