Introduction
The Securities and Exchange Commission (SEC) rule that would have put an independent price check on every adviser-led secondary never governed a single transaction. Adopted on August 23, 2023 as part of the private fund adviser rules, it took effect that November and was vacated by the Fifth Circuit on June 5, 2024, about three months before the largest advisers would have had to comply. It still matters to a private capital advisory (PCA) banker for two reasons: it shows what a federal rule for continuation vehicles (CVs) would have demanded, and the court's reasoning explains why protections in a general partner (GP)-led deal now come from fund documents and best practice instead.
What the 2023 Private Fund Adviser Rules Required
The SEC proposed the package in February 2022 and adopted a narrower version in its August 2023 adopting release under the Investment Advisers Act of 1940. It held five rules plus amendments to the books and records rule and the compliance rule (Rule 206(4)-7), reaching three populations of advisers:
| Rule | Who it covered | Core requirement |
|---|---|---|
| Quarterly statements | Registered private fund advisers | Quarterly reporting of fund performance, fees, and expenses |
| Private fund audit | Registered private fund advisers | An annual audit of each fund |
| Adviser-led secondaries | Registered private fund advisers | An independent fairness or valuation opinion before investors elect |
| Restricted activities | All private fund advisers | Certain fee, expense, clawback, and borrowing practices only with disclosure or consent |
| Preferential treatment | All private fund advisers | Some redemption and information preferences banned; all others disclosed |
| Compliance rule amendment | All registered advisers | A written record of the annual compliance review |
Only the third row targeted a transaction. The rule required a registered adviser to obtain, and distribute to the fund's investors, a fairness opinion or a valuation opinion from an independent opinion provider, a firm that gives such opinions in the ordinary course of business and is not related to the adviser. The adviser also had to distribute a written summary of any material business relationships it or its related persons had with that provider in the previous two years. Both documents were due before investors' election forms.
- Adviser-Led Secondary Transaction
The SEC's term, in its vacated 2023 rules, for a transaction initiated by a fund's investment adviser or its related persons that offers the fund's investors a choice between selling all or part of their interests and converting or exchanging them for interests in another vehicle the adviser or its related persons advise.
The final text was softer than the proposal. The 2022 draft had demanded a fairness opinion; the adopted rule also accepted a valuation opinion, which the SEC said could cost less, a difference explained in what a fairness opinion is. Delivery moved from before closing to before the election deadline, when investors could still use it. And the definition now required a choice between selling and rolling, which generally took GP-led tender offers outside it, since their investors can usually stay on unchanged terms.
How the Fifth Circuit Vacated the Whole Package
Six trade associations representing alternative asset managers, led by the National Association of Private Fund Managers, petitioned the Fifth Circuit on September 1, 2023. In National Association of Private Fund Managers v. SEC, a three-judge panel held that neither provision the SEC relied on authorized the rules. Section 211(h), added by the Dodd-Frank Act, sits in a part of that law about retail customers, and the court read it as limited to them. Section 206(4) lets the SEC prescribe means to prevent fraud, but the SEC had not defined the fraud it was preventing, and the court called the antifraud rationale "pretextual". An adviser's disclosure duty, it added, runs to its client, the fund, not to each investor. Having found no authority, the court did not reach the other challenges and concluded that "no part of it can stand".
The SEC let the September 3, 2024 deadline to seek Supreme Court review pass, and its November 2024 technical amendments removed the vacated text from the Code of Federal Regulations.
What Governs GP-Led Secondaries After the Vacatur
With the deal-specific rule gone, a CV is policed by general law, contract, and recommended practice. The adviser still owes the fund a fiduciary duty under the Advisers Act, and the older antifraud rule for pooled vehicles, Rule 206(4)-8, still bars misleading statements to investors. The limited partnership agreement (LPA) and the limited partner advisory committee (LPAC) supply consent, and the Institutional Limited Partners Association (ILPA) supplies best practice: its 2023 continuation fund guidance and a June 2026 draft replacement. How those layers fit together is set out in conflicts of interest, fairness opinions, and the ILPA guidance.
The grounds of the decision also explain why the rule is unlikely to return in the same form. The court did not rule on the SEC's procedure or cost analysis, flaws a new release could cure; it held that the statute did not authorize the rules at all, so a future version would need a different legal basis, most plainly new legislation. Until then, an investor that wants an independent opinion in every GP-led gets it the way private fund investors get most protections: by negotiating for it in the LPA or a side letter, or from a GP that has adopted the practice on its own.
