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On June 22, 2020, the United States Department of Labor (the “DOL”) submitted a proposed regulation (the “Proposal”) regarding the use of Environmental, Social and Governance (“ESG”) factors in selecting investments for plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Proposal generally cautions plan fiduciaries against considering ESG factors when making investment decisions, unless such factors are relevant to the plan’s pecuniary goals.

Interest in ESG-themed investments has surged in popularity in recent years. One 2020 survey showed that nearly 74% of global investors intend to increase their allocation to ESG-oriented ETFs. However, ESG-themed investments have also captured the attention of regulators, including the DOL. The Securities and Exchange Commission recently listed ESG investments in its list of examination priorities with respect to the accuracy and adequacy of disclosures in the marketing of such investments. In addition, President Trump issued an Executive Order on April 10, 2019, which included a section on ESG investments. The Executive Order required the DOL Secretary to complete a review of trends with respect to ERISA plan investment in the energy sector. Continue Reading DOL Proposed Rule Urges Caution Regarding the Use of ESG Factors When Selecting Investments for ERISA Plans

On June 2, 2020, the long-awaited carried interest proposed regulations were returned to the Office of Management and Budget (OMB) for a second round of review.  The OMB’s Office of Information and Regulatory Affairs (OIRA) previously completed its review of the proposed regulations on February 27, 2020 and the funds and alternative investments industry has been eagerly been awaiting their release ever since.  The reason for the additional round of OMB review is unknown, although the move suggests that changes to the previously-reviewed regulations may be forthcoming prior to their release.

A carried interest generally refers to a profits interest a partnership that is issued in connection with the performance of services.  The 2017 Tax Cuts and Jobs Act introduced a 3-year holding period requirement for carried interests in partnerships that engage in making and managing investments. Under the new rules, a partner generally must hold its interest for more than three years to qualify for long-term capital gain treatment.  The holding period requirement has applied for taxable years beginning after December 31, 2017.  However, practitioners and the private funds industry have been awaiting further guidance on several open questions as to how the three-year holding period applies, including in the context of REIT capital gain distributions and situations where the holding period for the partnership interest does not align with the partnership’s holding period for an underlying asset, the sale of which gives rise to carried interest. The Private Equity, Funds & Investment Management team at Mayer Brown will provide observations on the proposed regulations upon their release.

The Department of Labor’s recent pronouncement on the permissibility of investing 401(k) and other defined contribution plan assets in private equity has gotten wide-spread attention. Yet the guidance, which was issued in the form of an information letter, does not establish any new fiduciary principles, or provide any exemptions under the Employee Retirement Income Security Act of 1974 (“ERISA”). This blog discusses why the recent guidance is so significant and what it does and does not do. Continue Reading DOL Issues Guidance about Private Equity Investments in 401(k) Plans

On April 21, 2020, the US Securities and Exchange Commission proposed new rule 2a-5 under the Investment Company Act of 1940, as amended (the “Investment Company Act”), which is intended to address valuation practices and the role of the board of directors with respect to the fair value of the investments of an investment company or business development company registered under the Investment Company Act (each, a “fund”). Specifically, proposed rule 2a-5 would establish requirements in connection with the determination of fair value in good faith of fund investments for purposes of Section 2(a)(41) of the Investment Company Act, as well as permit a fund’s board of directors to assign this fair value determination to the fund’s investment adviser, subject to board oversight and certain other conditions.

A closer look at the key requirements under the proposal are described in the following Mayer Brown Legal Update:

SEC Proposes Valuation Rule for Registered Funds (authored by Peter McCamman, Adam Kanter, Leslie Cruz and Stephanie Monaco).

If you have any questions about the issues raised in this Legal Update or would like assistance with SEC regulatory or other related matters, please contact any of the above attorneys in our Investment Management practice.

On April 7, 2020, the U.S. Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (“OCIE”) issued two companion risk alerts on compliance with Regulation Best Interest and Form CRS. In the press release accompanying these risk alerts, OCIE stated that these alerts are intended to provide broker-dealers and investment advisers with advance information about the expected scope and content of the initial examinations for compliance with Reg. BI and Form CRS, both of which have an upcoming compliance date of June 30, 2020.

A closer look at issues raised in these risk alerts, along with certain takeaways, can be found in the following Mayer Brown Legal Update:

SEC’s OCIE Risk Alerts – Examination Focus on Compliance with Regulation Best Interest and Form CRS (authored by Marlon Paz, Stephanie Monaco, Kyle Swan with Leslie Cruz, Adam Kanter and Peter McCamman). 

If you have any questions about the issues raised in this Legal Update or would like assistance with SEC regulatory or other related matters, please contact any of the above attorneys or any member of our Broker-Dealer or Investment Management practices.

Business Continuity Plans (“BCPs”) continue to be a key component of an investment adviser’s risk management and compliance program, but have traditionally focused on emergency planning for certain external and internal disruptions (such as natural disasters, blackouts and occasional short-term market disruptions to normal operations).  The recent impact of COVID-19 however, has reminded the industry of the need for implementing BCPs and other related risk policies that address not only short-term disruptions but also longer-term disruptions.  The following is a link to a recent Mayer Brown Legal Update that endeavors to provide investment advisers with a high-level outline of considerations as part of a broader risk assessment of their businesses as they address the potentially longer-term market, business, portfolio and personnel disruptions caused by COVID-19.

Investment Management Survival Tips in the COVID-19 Environment (authored by Matthew Rossi, John Noell, Tram Nguyen, Stephanie Monaco, Adam Kanter, Leslie Cruz, Peter McCamman and Wendy Gallegos).

Additional information and insight can be found on Mayer Brown’s dedicated website on the impact of COVID-19.  If you have any questions about the issues raised in the above alerts, please contact any of the above Legal Update authors.

As COVID-19 continues to impact global markets, the U.S. Securities and Exchange Commission (“SEC”) have recently provided certain guidance and targeted relief in recognition of the potential disruption that COVID-19 may have on market participants regulated by the Commission.  The following Mayer Brown client alerts describe and take a closer look at certain COVID-19 related SEC guidance and targeted relief that primarily impacts investment advisers and funds.

Additional information and insight can be found on Mayer Brown’s dedicated website on the impact of COVID-19.  If you have any questions about the issues raised in the above alerts, please contact the above authors or any member of our Investment Management practice.

On January 7, 2020, the US Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (“OCIE”) released its 2020 examination priorities.  While a number of the 2020 priorities are continuations from the prior year, OCIE made certain enhancements and/or additions to these exam priorities that are similar to themes highlighted in its risk alerts and regulatory initiatives during 2019.

A closer look at issues raised in the 2020 OCIE priorities, along with some key takeaways, can be found in the following Mayer Brown Legal Update.

Legal Update on OCIE’s 2020 Examination Priorities (authored by Stephanie Monaco and Leslie Cruz):

https://www.mayerbrown.com/en/perspectives-events/publications/2020/01/ocies-2020-examination-priorities-variations-on-recurring-themes

If you have any questions about the issues raised in this Legal Update or would like assistance with SEC regulatory or other related matters, please contact the above Legal Update authors or any member of our Investment Management practice.

On August 21, 2019, the Securities and Exchange Commission published two separate releases related to proxy voting issues.  One release provided guidance regarding proxy voting responsibilities of investment advisers under the Investment Advisers Act of 1940 and Rule 206(4)-6 thereunder (the “Investment Adviser Proxy Guidance”), while the other provided an interpretation and related guidance regarding the applicability of certain rules under Section 14 of the Securities Exchange Act of 1934 to proxy voting advice (the “Exchange Act Proxy Guidance”).

A closer look at issues raised in these releases, along with some key takeaways, can be found in the following Mayer Brown Legal Updates:

Legal Update on Investment Adviser Proxy Guidance (authored by Leslie Cruz, Adam Kanter and Stephanie Monaco):

https://www.mayerbrown.com/en/perspectives-events/publications/2019/09/sec-publishes-guidance-on-the-proxy-voting-responsibilities-of-investment-advisers

Legal Update on Exchange Act Proxy Guidance (authored by Robert Grey, Michael Hermsen and Laura Richman):

https://www.mayerbrown.com/en/perspectives-events/publications/2019/08/sec-issues-guidance-on-the-application-of-the-proxy-rules-to-voting-advice

If you have any questions about the issues raised in these Legal Updates or would like assistance with SEC regulatory or other matters related to proxy voting, please contact any of the aforementioned Legal Update authors above or any member of our Investment Management practice.

Privacy and the safeguarding of customer information continues to be an important compliance topic from the SEC’s perspective, including its examination staff.  The SEC’s Office of Compliance Inspections and Examinations (OCIE) recently released a Risk Alert highlighting common examination deficiencies from registered advisers and broker-dealers related to Regulation S-P, a rule requiring that such registrants provide privacy notices to clients and implement customer information safeguarding policies.   A closer look at this Risk Alert along with some key takeaways for advisers and broker-dealers to consider can be found in the following Mayer Brown Legal Update.

Legal Update on OCIE Risk Alert for Investment Adviser and Broker-Dealer Compliance Issues Related to Regulation S-P (authored by Peter McCamman, Matthew Bisanz, Jeffrey Taft and Adam Kanter):

https://www.mayerbrown.com/en/perspectives-events/publications/2019/04/secs-ocie-issues-risk-alert-for-investment-adviser-and-brokerdealer-compliance-issues-related-to-regulation-sp

If you have any questions about the issues raised in this Legal Update or would like assistance with SEC regulatory matters related to privacy, safeguarding or otherwise, please contact any of the aforementioned Legal Update authors or any member of our Investment Management or Financial Services Regulatory & Enforcement practice groups.