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The staff of the SEC’s Investment Management Division (the “Staff”) recently published FAQs (the “FAQs”) under Rule 206(4)-1 of the Investment Advisers Act of 1940 (the “Marketing Regulations”). issued and clarified it. An SEC-registered investment advisor (“Advisor”) advertises the aggregate performance of an investment (e.g., a case study) or group of investments from a private fund without even showing the net performance of his one investment. cannot be presented in Or a group of investments.1
Marketing Rules prohibit the presentation of aggregate performance in advertisements unless the advertisement also presents net performance. Net performance is defined as the portion of the portfolio included in the portfolio performance results or extracted performance. According to the staff, showing the performance of one of his investments or groups of investments in private funds is an example of performance extracted. The staff noted that the Extracted Performance Provisions in the Marketing Rules are intended to protect investors from advisors who, with the benefit of hindsight, present misleading and selective profitable performance. We reasoned that the performance obtained should be read to apply to a subset or more than one investment. Therefore, an advisor who presents the aggregate performance of an investment or group of investments must also present the net performance of her one investment or group of investments.
The staff added that when presenting abstracted performance, such as case study performance results, advisors must meet other specific disclosure requirements and general prohibitions in marketing rules. fair and balanced way.
dorsey observation
FAQs answer important open questions related to Marketing Rules. Advisors should identify ads that present aggregate performance results for a single investment, such as case studies or investment groups. In light of the FAQ, advisors should calculate and present the net performance results of their investments. Advisors are encouraged to document and disclose the assumptions and methodology underlying the calculation of net performance results for a single investment or subset of investments.
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