TLDR: Venture Capital Fund Managers’ Guide to Applying the Latest Marketing Rule Risk Alert
Key Points:
- Division of Examinations at the Securities and Exchange Commission (SEC) published a Risk Alert titled, “Initial Observations Regarding Advisers Act Marketing Rule Compliance.”
- The Risk Alert provides observations by staff regarding advisers’ compliance with the Marketing Rule, with specific relevance to venture capital fund managers.
In the latest Risk Alert, the division shares numerous observations by its staff regarding advisers’ compliance with the Marketing Rule, particularly relevant to venture capital fund managers. Some key observations include:
One of the most important documents for fund managers is the marketing deck, which highlights managing directors, their professional experience, and what sets them apart from their peers. The Risk Alert points out common practices that may lead to misleading advertisements and provides guidelines for compliance with the Marketing Rule:
- Showing personal track record and balance sheet investments with detailed disclosures around assumptions and risks.
- Avoiding unfair and unbalanced statements that do not provide fair treatment of material risks.
- Avoiding cherry-picking and case studies that highlight only profitable investments.
- Clarifying the network of personnel roles and avoiding inaccurate descriptions.
- Ensuring formalized screening processes are accurately reflected in marketing materials.
- Avoiding the use of images of celebrities that imply endorsement.
- Presenting disclosures in readable fonts to avoid misleading information.
- Being cautious with outdated market data and ensuring net returns are calculated accurately.
- Providing proper context for benchmark index comparisons in marketing materials.
The SEC has been focusing on Marketing Rule compliance, and venture capital fund managers would benefit from reviewing the full Risk Alert. Compliance with the Marketing Rule is crucial for fund managers to avoid misleading advertisements and remain in good standing with regulatory requirements.
