On February 12, 2019, the Institutional Limited Partners Association (ILPA) submitted a letter to the Securities and Exchange Commission (SEC) asking the SEC to take certain steps to ensure that investment advisers in the private equity market are subject to fiduciary duty requirements.1 The SEC has recently focused on devising a comprehensive interpretation of the fiduciary duties that investment advisers owe to their clients. ILPA has been vocal on this topic and has submitted two prior letters in addition to this most recent one and attended various meetings with the Chairman, Commissioners and staff of the SEC. For parties on both sides of the issues, ILPA's advocacy and the SEC's response bear watching.
ILPA describes itself as the "voice of institutional investors in the private equity asset class, known as Limited Partners." According to ILPA, it "has approximately 500 member institutions, which represent over $2 trillion in private equity assets under management, including U.S. and global public and private pension funds, insurance companies, university endowments, charitable foundations, family offices, and sovereign wealth funds."
ILPA submitted a letter to the SEC on August 6, 2018, after the SEC announced a Proposed Interpretation Regarding Standard of Conduct for Investment Advisers (the Proposed Interpretation) and requested comments.2 In that letter, ILPA stated its strong interest in a requirement that investment advisers to private equity funds be registered and subject to regulations under the Investment Advisers Act of 1940 (Advisers Act), including fiduciary duty requirements. On November 21, 2018, ILPA submitted a follow-up letter in which it urged the SEC to rescind the Heitman Capital No-Action Letter, issued in 2007, given market developments since then.3 The Heitman Capital No-Action Letter allowed for the elimination of contractual fiduciary protections by permitting the inclusion of hedge clauses into limited partnership agreements, which typically require funds to indemnify advisers for liability of any nature unless the adviser's actions were grossly negligent, reckless, willfully improper, or fraudulent.
Most recently, in ILPA's February 12, 2019 follow-up letter, it again urged the SEC to rescind the Heitman Capital No-Action Letter andgoing beyond comment on the Proposed Interpretationalso encouraged the SEC to (i) issue a statement indicating that any settlements of enforcement actions with a private fund...