SEC Issues Guidance Relating to Private Funds, the Custody Rule, SPVs and Escrows
The SEC Division of Investment Management issued guidance to address how Advisers Act Rule 206(4)-2 ("The Custody Rule") applies when advisers to pooled investment vehicles utilize either special purpose vehicles when making investments ("Investment SPVs"), or escrow accounts when selling interests in portfolio companies.
According to the SEC, inquiries regarding Investment SPVs commonly are focused on how the SEC's guidance applies to an investment adviser to pooled investment vehicles that rely on the audit provision. Inquiries regarding Escrow accounts commonly are focused on a circumstance involving the sale of a portfolio company owned by one or more pooled investment vehicles that are advised by both (i) a registered investment adviser and (ii) other persons that are not clients of the adviser.
The guidance addresses a number of more specific scenarios relating to these issues.