Under the US federal securities laws, US investment advisers are governed by a robust regulatory framework. In addition, the US federal securities laws cover many aspects of fund formation and the offerings of fund interests. Other US federal and state rules may apply depending on a number of factors, including the nature of the fund’s investment activities and/or the advisory activities of an investment adviser.

The regulatory landscape for private funds remains complex, and several regulatory initiatives have been vacated, withdrawn, narrowed or delayed since 2024 and 2025. Significant rules now in force include the Securities and Exchange Commission’s (SEC) Marketing Rule and the amended Regulation S-P governing customer information protection. The 2024 Form PF amendments compliance date has been extended from October 2026 to July 2027.

Other notable developments include the Financial Crimes Enforcement Network’s (FinCEN) narrowing of its Corporate Transparency Act (CTA) rule, and FinCEN’s two-year delay to 1 January 2028 of its regulation that designates certain registered investment advisers (RIAs) and exempt reporting advisers (ERAs) as “financial institutions” under the Bank Secrecy Act – IA AML Rule. See 2.10 Anticipated Changes for Funds and 4.13 Anticipated Changes for Investors.

Alternative funds are formed to accommodate a variety of investment strategies. The strategies of “closed-end” private funds will typically be structured to target investments in one or more segments of a company’s capital stack (eg, venture capital funds, growth equity funds, buyout funds, distressed funds or credit funds).

Open-ended funds will generally permit investors to invest in or redeem from the fund periodically, often subject to restrictions such as redemption gates or lock-ups. Open-ended funds will typically pursue a more liquid portfolio, although these structures can also be designed to accommodate illiquid investments (eg, using a “side pocket” structure).

Key Entities

Both closed- and open-ended alternative funds formed in the USA will typically involve several key entities, including as follows.

Funds

Funds targeting US investments will typically be formed as Delaware limited partnerships or limited liability companies (LLCs). In the USA, Delaware is widely known as the “go-to” jurisdiction for entity formation given, among other things, its wide recognition, well-developed body of case law, robust legal protections, freedom to contract, and low start-up costs (with Texas and Nevada gaining recognition for many of the same reasons). Also, its state courts are highly experienced in resolving complex business disputes and generally known for respecting the freedom to contract. Other US states or non-US jurisdictions will be used where appropriate to accommodate particular tax, regulatory or other legal needs.

General partner or other managing entity (eg, managing member or manager)

These have the legal power to act on behalf of the fund. Depending on the structure and tax characteristics, this entity also typically receives the “carried interest” or “incentive/performance allocation” (although it is not unusual for the profits interests to be allocated to a special purpose vehicle).

Management company or investment adviser

These are appointed to provide investment advisory services to the fund, employ the investment team, provide management or investment advisory services and generally manage the day-to-day operations of the fund. These entities typically receive a management fee for their services.

Other related entities may be formed to accommodate the tax, regulatory and other legal needs of the investment adviser or the fund and its investors.

Alternative funds and investment advisers are subject to a variety of regulations under US federal and state laws. The following outlines the basic US federal regulatory regime for alternative funds; depending on the facts and circumstances, other rules may apply.

The US Securities Act of 1933 (the “Securities Act”)

Alternative funds are subject to the US rules concerning private placements when interests are offered to US persons, or via US jurisdictional means. Offers and sales of securities in the United States may only be made pursuant to a registration statement filed with the SEC or in accordance with an exemption from these registration requirements. Alternative funds typically rely on the registration exemption provided by Section 4(a)(2) of the Securities Act, and the “safe harbour” provided by Rule 506 under Regulation D under the Securities Act (“Regulation D”). Section 4(a)(2) is a private placement exemption available to issuers for sales of their securities “not involving any public offering”. Section 4(a)(2) does not expressly provide details of what constitutes a valid private placement, so most alternative funds rely on the safe harbour provisions set forth in Regulation D. Rule 506(b) of Regulation D generally requires the following.

• Limitation on manner of offering: there should be no general advertising or “general solicitation”.
• Limitations on resale:
1. offering materials should include special legends regarding US selling and transfer restrictions; and
2. each purchaser should represent in the fund’s subscription agreement that it is acquiring the interests for its own account and not with a view to resale or distribution thereof, and each purchaser should further undertake that it will only resell the interests in accordance with the Securities Act and the fund’s transfer restrictions.
• Nature of and limitation on number of purchasers: Rule 506(b) may be used for offers and sales to an unlimited number of accredited investors and no more than 35 non-accredited investors in any 90-calendar-day period, provided each non-accredited purchaser (alone or with a purchaser representative) has the requisite financial and business knowledge and experience. Non-accredited purchasers must receive the information required by Rule 502(b) (disclosures that are similar to what would be required in a public/registered offering) a reasonable time before sale; most alternative funds limit offerings to accredited investors.
• “Bad actor” disqualification: Rule 506(d) disqualification can apply if the fund or any other “covered person” has a disqualifying event.
• SEC filing: Form D must be filed with the SEC no later than 15 calendar days after the fund’s first sale of securities, with the due date moving to the next business day if it falls on a weekend or holiday, and annual amendments are required while the offering is continuing.

Rule 506(c) is a separate safe harbour that permits general solicitation and general advertising (see 4.7 Private Placements). The overwhelming majority of alternative funds rely on Rule 506(b).

Offerings by US domiciled funds to non-US investors will generally be made in accordance with Regulation D. Offerings by non-US domiciled funds to non-US investors will generally be made in accordance with Regulation S under the Securities Act, which provides that registration under the Securities Act is not required when the offer and sale of a security occurs outside the United States in an offshore transaction and there are no directed selling efforts in the United States with respect to such sale.

The US Investment Company Act of 1940 (the “Investment Company Act”)

The Investment Company Act regulates “investment companies”, which are broadly defined as companies that engage primarily in “investing, reinvesting, owning, holding or trading in securities”. To avoid being subject to the onerous requirements of operating as a registered investment company under the Investment Company Act, many alternative funds are structured to rely on two common exceptions under the Investment Company Act, as follows.

Section 3(c)(7) provides an exclusion for a privately offered fund whose interests are beneficially owned by “qualified purchasers”. “Qualified purchasers” generally include:

• (i) individuals, family-owned businesses, and trusts for family members that own USD5 million or more in “investments”;
• (ii) a trust (not addressed in (i)) that is not formed for the specific purpose of acquiring securities, and where the trustee or other person authorised to make decisions with respect to the trust, and each settlor or other person who has contributed assets to the trust, qualifies as a qualified purchaser;
• (iii) entities that own and invest at least USD25 million in investments and that were not formed for the purpose of making the investment; and
• (iv) entities exclusively owned by qualified purchasers.

Section 3(c)(1) provides an exclusion for a privately offered fund whose interests are beneficially owned by not more than 100 beneficial owners. A special category for a “qualifying venture capital fund” permits up to 250 beneficial owners, but only if the fund satisfies the applicable venture capital fund definition and the aggregate capital contributions and uncalled committed capital limit, which is currently USD12 million under SEC Rule 3c-7, effective 30 September 2024. A fund structured under Section 3(c)(1) must adhere to various “anti-pyramiding” rules that are designed to prevent circumventing the 100-investor limit. Where a fund forms two parallel funds, one a 3(c)(1) private investment fund with 100 or fewer non-qualified purchasers and the other a 3(c)(7) qualified purchaser fund with an unlimited number of qualified purchasers, the two funds are not integrated for purposes of determining whether the first qualifies under the applicable exemption.

The US Investment Advisers Act of 1940 (the “Advisers Act”)

See 2.3 Disclosure/Reporting Requirements and 3.3 Regulatory Regime for Managers.

The US Commodity Exchange Act (CEA)

The CEA generally governs the futures and derivatives markets. In the United States, securities and futures are subject to separate regulatory regimes. The US Commodity Futures Trading Commission (CFTC) and US National Futures Association (NFA) serve as the principal derivatives regulatory and self-regulatory authorities. A fund that trades futures, options on futures, retail foreign exchange, swaps or other “Commodity Interests”, for all practical purposes, will be a “commodity pool”.

The operator (ie, sponsor or general partner) of a commodity pool generally must register with the CFTC as a commodity pool operator (CPO) and become an NFA member unless it can avail itself of an exemption or exclusion. The investment manager to a commodity pool generally may also need to register with the CFTC as a commodity trading advisor (CTA) and become an NFA member unless it can rely on an exemption or exclusion. See 2.3 Disclosure/Reporting Requirements and 3.3 Regulatory Regime for Managers for further information regarding CFTC registration.

The US Securities Exchange Act of 1934 (the “Exchange Act”)

The Exchange Act generally governs the issuers of registered securities and regulates broker-dealers. A person acting as a broker or dealer in connection with fund-interest transactions generally must be registered or rely on an available exemption. A fund may sell its own interests for its own account, and issuer personnel may rely on Rule 3a4-1 if its conditions are met; placement agents and other persons receiving transaction-based compensation require broker-dealer registration. See 4.8 Compensation and Placement Agents.

ERISA

Under the Employee Retirement Income Security Act’s (ERISA) Plan Asset Regulation, when “Benefit Plan Investors” hold 25% or more of the value of any class of equity interests in a fund, disregarding interests held by the investment manager and certain affiliates, the fund’s underlying assets may be treated as plan assets unless an exception applies. These funds are typically referred to as “plan asset funds”. Individuals responsible for the investment and management of plan asset funds are subject to ERISA’s fiduciary responsibility provisions and certain prohibited transaction provisions under both ERISA and the US Internal Revenue Code (the “Code”). If these obligations are breached, the fund’s sponsor and/or investment adviser can incur substantial liabilities and penalties. A Benefit Plan Investor generally includes:

• (i) an employee benefit plan subject to title I of ERISA;
• (ii) individual retirement accounts, Keogh Plans and other plans that are not subject to ERISA but are subject to the prohibited transaction rules of Code Section 4975; and
• (iii) other entities the assets of which are deemed to be plan assets based on investment from entities listed in (i) and/or (ii) above.

State Regulation

Alternative funds and investment advisers will be required to comply with state securities laws (so-called “blue sky” laws) and related regulations, the application of which may (in part) be pre-empted by certain of the federal securities laws mentioned above.

An investment adviser or management company that falls within the definition of “investment adviser” under the Advisers Act generally must register with the SEC or a state, unless an exception or exemption applies. An adviser with less than USD25 million of regulatory assets under management generally may not register with the SEC. A mid-sized adviser with USD25 million to less than USD100 million of regulatory assets under management that is subject to state registration and examination generally is regulated by the relevant state, subject to applicable exceptions. (see 3.3 Regulatory Regime for Managers). A sponsor that registers with the SEC as an investment adviser will be required to, among other things:

• file a Form ADV with the SEC and keep it current by filing periodic amendments, including an annual amendment;
• comply with the “brochure rule”, which requires most advisers to provide clients and prospective clients with information about the adviser’s business practices and its principals’ educational and business backgrounds (most advisers satisfy this requirement by providing Part 2 of Form ADV);
• maintain accurate and current books and records, and be subject to inspection and examination by SEC staff;
• file Form PF on the applicable annual or quarterly schedule and, where applicable, file current reports or private equity event reports;
• adopt and maintain written policies and procedures that are reasonably designed to prevent violations of the Advisers Act and related regulations, and have a code of ethics governing employee behaviour (including personal trading reporting, and restrictions and enforcement of certain insider trading procedures);
• comply with the Marketing Rule (see 3.3 Regulatory Regime for Managers); and
• only charge performance-based fees (ie, carried interest) to “qualified clients” as defined in Rule 205-3 under the Advisers Act, subject to the rule’s transition provisions and the most recent SEC inflation-adjustment order.

CPOs and CTAs have specific filing and reporting requirements under the CEA, the CFTC’s rules and the rules of the NFA. 

Managers registered as CPOs must generally:

• distribute monthly or quarterly account statements to pool participants within 30 days of month-end or quarter-end;
• distribute an annual report to pool participants within 90 days of the pool’s fiscal year-end; and
• file the revised Form CPO-PQR with the NFA on a quarterly basis, providing specific information about the manager and the commodity pools that it operates – Form PF is not accepted in lieu of Form CPO-PQR under the current CFTC rules.

Managers registered as CTAs must generally:

• file Form PR with the NFA within 45 days after the quarters ended in March, June and September; and
• file a year-end report within 45 days of the calendar year-end.

Managers that are registered as CPOs and/or CTAs may rely on certain exemptions to avoid some of their record-keeping and disclosure requirements for a fund. See 3.3 Regulatory Regime for Managers.

No Entity-Level Income Tax on Flow-Through Funds

Typically, US-based funds are established as pass-through entities, such as partnerships or LLCs. Generally, a pass-through entity does not pay any entity-level income tax; instead, the beneficial owners of such pass-through entity report their share of the pass-through entity’s income, which itself is reported by the pass-through entity to its beneficial owners on an Internal Revenue Service Schedule K-1 (and, to the extent that the fund has foreign income, on an Internal Revenue Service Schedule K-3), and pay applicable federal income taxes at rates specific to such beneficial owners. However, in certain circumstances, a fund could be deemed to be a “publicly traded partnership”, subjecting it to federal income tax at the corporate income tax rate unless the fund satisfies an annual 90% “annual income” test.

Corporate Income Tax

In the unusual circumstance where a US fund is established as a corporation, such fund is subject to US federal income tax (at a 21% rate as of 2026) and may be subject to state income tax. Additionally, some funds may elect to use a structure involving a below-the-fund or above-the-fund “blocker corporation” that would pay US federal income tax but may help tax-exempt and non-US investors avoid incurring unrelated business taxable income (UBTI) or effectively connected income (ECI), respectively (see 4.9 Tax Regime for Investors).

Permissible, Subject to State Lending Laws

Alternative funds are permitted to originate loans, but a state-by-state analysis should be considered to evaluate licensing risk.

State Licensing Laws

Certain states regulate both commercial and consumer lending. Because licensing requirements vary from state to state, alternative funds must consider their licensing risk on a state-by-state basis. Although there is no one-size-fits-all analysis, some relevant factors that are typically considered to determine whether licensing is required include:

• the purpose/type of loan;
• the amount of the loan;
• the frequency of the lender’s lending activity (eg, the number of loans made in a 12-month period);
• the amount of interest charged on the loan;
• the location of the borrower;
• the location of the lender/location from where the lender solicits loans; and
• the location of the collateral.

If licensing is required, a state regulator will generally require the fund to meet certain financial conditions and to submit a licensing application that includes the disclosure of certain minimum information. Although state requirements vary, licensing applications may require disclosure of information regarding the fund’s business plan, financial information and the fund’s owners, parents, subsidiaries and affiliates.

State Usury Laws

States generally impose statutory limitations regarding the permissible amount of interest that a lender may charge on a loan. State statutes vary, but the type/purpose of the loan and the amount of the loan generally are two key factors considered in this analysis.

Tax Considerations

A fund that originates loans may be treated as being engaged in a US trade or business for US federal income tax purposes, depending on the number of loans originated. In that case, non-US investors would be deemed to be engaged in a US trade or business as well, and would have to file US income and possibly state income tax returns and pay US federal and state tax.

There are no special limitations regarding the types of assets in which a fund may invest, although special US federal and/or state rules may apply, depending on the nature of the fund’s assets – for example, as follows.

Digital asset or cryptocurrency funds are often structured utilising open-ended hedge fund structures. Whether a digital asset, tokenised instrument or related transaction is subject to US federal securities laws depends on the facts and circumstances, including the nature of the asset and the manner in which it is offered, sold or traded. The US regulatory framework applicable to digital assets also continues to evolve, with new rules and regulatory frameworks under consideration. On 14 August 2026, the SEC proposed Regulation Crypto Assets, the first comprehensive federal securities framework tailored specifically to crypto-asset offerings (the proposal would create new registration exemptions, establish tailored disclosure and reporting requirements, and provide greater clarity regarding when a crypto-asset may cease to be subject to the federal securities laws).

Cannabis funds are typically structured utilising private equity fund structures. However, in determining the fund’s domicile within the USA, fund sponsors should give due consideration to the various state-by-state differences in US state cannabis regulations, as well as the risks inherent in this strategy given that cannabis remains illegal under US federal law.

Alternative fund structures can be utilised to accommodate the tax, regulatory and other legal needs of the investment adviser and the fund and its investors. For example, non-US investors who seek to avoid certain US tax filing obligations or other adverse tax consequences may invest in a fund via feeder funds that are treated as corporations for US federal income tax purposes or by investing directly or indirectly in parallel funds or alternative investment funds that utilise blocker corporations. See 2.4 Tax Regime for Funds and 4.9 Tax Regime for Investors.

Generally, US states (including Delaware) do not require managers to have a local presence (or appoint local directors) to form an entity. Depending on the scope of their intra-state activities (eg, opening an office, hiring employees, etc), entities may be required to register to do business in one or more US states.

Broad Discretion to Appoint Service Providers

Under relevant federal law, alternative funds and their managers have discretion to appoint service providers.

Custodians – SEC Custody Rule

Under the Advisers Act, where an SEC-registered investment adviser (RIA) is deemed to have “custody” of a fund’s assets, the adviser becomes subject to Rule 206(4)-2 of the Advisers Act (the “Custody Rule”). The Custody Rule generally requires client funds and securities to be maintained by a qualified custodian, subject to exceptions, and many private fund advisers rely on the annual audit approach for pooled investment vehicles by distributing audited financial statements to investors within the required time period.

On 20 April 2026, the SEC and CFTC proposed amendments to Form PF intended to reduce reporting burdens on private fund advisers. Among other changes, the proposal would increase the filing threshold from USD150 million to USD1 billion, increase the large hedge fund adviser reporting threshold from USD1.5 billion to USD10 billion, and eliminate or streamline certain reporting requirements. The compliance date was extended from October 2026 to July 2027.

The SEC is considering amendments under the Advisers Act and Investment Company Act to facilitate retail investor exposure to private markets through registered investment companies, and to permit advisers to charge performance fees to an expanded set of clients. The SEC’s regulatory agenda anticipates a notice of proposed rulemaking (NPRM) in October 2026.

The SEC released a proposal on 3 September 2026, to rescind Rule 206(4)-5 (the “Pay-to-Play Rule”) and related amendments to the record-keeping rule. For now, the Pay-to-Play Rule continues in force until future guidance is issued.

Further, the SEC is considering amendments to modernise the custody framework for advisory client and fund assets, including crypto-assets, and to address burdens associated with certain outdated requirements. An NPRM is anticipated in October 2026.

The SEC is considering amendments intended to facilitate capital formation and simplify private offering pathways, including potential changes to the definition of “accredited investor”. An NPRM is also anticipated in October 2026.

The SEC is considering a proposal addressing the regulatory status of “finders” under Section 15(a) of the Exchange Act. The proposal could provide additional clarity regarding when persons involved in securities transactions, including private fund capital raising, are required to register as broker-dealers. An NPRM is anticipated in October 2026.

On 11 August 2026, FinCEN issued a final rule permanently exempting US companies and US persons from beneficial ownership information reporting under the Corporate Transparency Act. Certain foreign entities registered to do business in the United States remain subject to reporting requirements, although they generally are not required to report information regarding US persons. The final rule became effective on 14 August 2026.

On 31 December 2025, FinCEN issued a final rule delaying the effective date of its anti-money laundering/countering the financing of terrorism (AML/CFT) programme and suspicious activity reporting requirements for RIAs and ERAs from 1 January 2026 to 1 January 2028. FinCEN has also indicated that it intends to reconsider the scope of the rule.

On 14 August 2026, FinCEN finalised the CTA beneficial ownership information reporting amendments. The final rule makes permanent the 2025 narrowing of “reporting company” to certain foreign entities registered to do business in the United States, exempts domestic reporting companies, and generally exempts US persons from reporting as beneficial owners or company applicants of foreign reporting companies.

On 31 December 2025, FinCEN issued a final rule delaying the effective date of the IA AML Rule from 1 January 2026 to 1 January 2028. As of this submission, the IA AML Rule’s AML/CFT programme, SAR, record-keeping and related requirements are delayed rather than operative.

US alternative funds are predominantly established by US promoters and sponsors. Non-US advisers may also establish US funds for various purposes. In order to avoid integration of their US investment advisory activities with their global business operations, some non-US investment advisers may form separate US-affiliated investment advisers.

See 3.4 Tax Regime for Managers.

Registration Under the Advisers Act

Section 202(a)(11) of the Advisers Act generally defines an “investment adviser” to mean any person who, for compensation, engages in the business of advising others as to the value of securities or as to the purchase or sale of securities, or who, for compensation and as part of a regular business, issues analyses or reports concerning securities.

An adviser that falls within the definition of “investment adviser” may have to register under the Advisers Act and be subject to its substantive requirements, unless an exemption applies (see 2.3 Disclosure/Reporting Requirements).

Exemptions From Registration Under the Advisers Act

Common exemptions from registration as an investment adviser under the Advisers Act for private fund managers are as follows:

• the private fund adviser exemption applies to advisers who solely manage private funds with less than USD150 million in assets under management in the United States;
• the venture capital fund adviser exemption applies to advisers who advise solely venture capital funds;
• the foreign private adviser exemption applies to non-US advisers with no place of business in the USA, fewer than 15 clients and investors in the USA, and less than USD25 million in assets under management attributable to US clients and investors, subject to the applicable counting rules; and
• the SBIC exemption applies to investment advisers who solely advise entities that have received from the Small Business Administration notice to proceed to qualify for a licence as a small business investment company under the Small Business Investment Act of 1958.

Fiduciary Duties and Anti-Fraud Protections

An investment adviser subject to the Advisers Act (ie, whether registered or unregistered) owes fiduciary duties to its advisory clients, with duties of care and loyalty that are principles-based and informed by the facts and circumstances of the relationship. Registered and unregistered advisers remain subject to applicable Advisers Act anti-fraud provisions, including prohibitions on materially misleading statements and fraudulent or deceptive conduct.

Section 206 of the Advisers Act contains broad “anti-fraud” provisions that make it unlawful for an investment adviser to directly or indirectly engage in the following:

• devices, schemes or artifices to defraud any client or prospective client;
• transactions that operate as a fraud or deceit upon any client or prospective client;
• when acting as principal for its own account, knowingly selling any security to or purchasing any security from a client for its own account, without disclosing to the client in writing the capacity in which it (or an affiliate) is acting and obtaining the client’s consent before the completion of the transaction; and
• any act, practice or course of business that is fraudulent, deceptive or manipulative.

The CEA

Registration requirements

If a fund trades commodity interests as part of its investment strategy, it will be a “commodity pool”. The operator (ie, sponsor or general partner) generally must register with the CFTC as a CPO and become an NFA member unless it can rely on an exemption or exclusion.

Many managers that only invest in commodity interests on a limited basis rely on an exemption from registration as a CPO found in CFTC Regulation 4.13(a)(3). Rule 4.13(a)(3) provides an exemption for managers that operate pools whose interests are exempt from registration under the Securities Act of 1933, restrict participation to accredited investors, certain family trusts formed by accredited investors and “knowledgeable employees”, and where either:

• the aggregate net notional value of the fund’s commodity interest positions does not exceed 100% of the liquidation value of its portfolio; or
• the aggregate initial futures margin and options premium needed to establish the fund’s commodity interest positions does not exceed 5% of the liquidation value of its portfolio.

A registered CPO also can rely on Rule 4.13(a)(3) for qualifying funds, which exempts the registered CPO from most of the disclosure and record-keeping obligations it otherwise would have for the fund.

CFTC Rule 4.14(a)(10), together with Section 4m(l) of the CEA, exempts any person from the requirement to register as a CTA, provided that such person has not during the prior 12 months furnished commodity trading advice to more than 15 persons and such person does not hold itself out generally to the public as a CTA. For an adviser with its principal place of business outside the USA, the adviser need only count US-based clients for purposes of such 15-client limitation. In order to rely on the de minimis exemption in CFTC Rule 4.14(a)(10), no regulatory filing or approval is necessary.

Generally, CFTC regulations require all commodity pools sponsored by registered CPOs to have a “disclosure document” (ie, a private placement memorandum) that contains certain disclosures prescribed by regulation and which must be reviewed by the NFA, unless an exemption from such requirement is available.

If a CPO limits the investors in a fund solely to “qualified eligible persons” (QEPs) as defined in CFTC Rule 4.7, the CPO is exempt from the requirement that its pool have a disclosure document reviewed by the NFA, nor must any voluntary disclosure document contain required CFTC disclosures other than a required disclaimer (although the document must contain all relevant information and disclosures so as not to make the document materially misleading).

On 18 August 2026, the CFTC announced proposed rulemaking amendments to its CPO and CTA registration framework. The proposal would introduce Rule 4.13(a)(4), a new exemption from registration as a CPO for certain investment advisers registered with the SEC that operate privately offered commodity pools limited to specified sophisticated investors. The relief would be limited to SEC-registered investment advisers who have already filed Form PF, and would not be available for ERAs. The CFTC would also restore related relief from CTA registration and increase the capital contribution threshold for the small-pool CPO exemption from USD400,000 to USD800,000. Managers may continue to rely on CFTC Staff Letter 25-50 pending adoption of the proposed rule.

The Exchange Act

Section 15(a) of the Exchange Act provides that it is unlawful for any broker or dealer to make use of any means of interstate commerce in the United States to effect any transactions in, or induce the purchase or sale of, any security, unless it is registered with the SEC or an exemption from registration is available. Generally, a broker is a person engaged in the business of effecting transactions in securities for the account of others for a commission, and a dealer is a person engaged in the business of buying and selling securities for such person’s own account through a broker or otherwise.

For the most part, an issuer of securities (such as a fund) should not be deemed to be a dealer since it is not both buying and selling its securities. Furthermore, an issuer (such as a fund) should not be considered a broker because the securities it is selling are not being sold for the “account of others”; rather, they are being sold by the issuer for its own account. Unlike an issuer, however, an issuer’s employee or its general partner’s employees may be deemed to be selling securities for the account of others for a commission. See 4.8 Compensation and Placement Agents.

Rule 10b-5 under the Exchange Act provides for liability for any material misstatement or omission in connection with the purchase or sale of a security involving the use of US jurisdictional means.

Tax Considerations for US Managers

Fund managers are generally formed as limited partnerships or LLCs and are pass-through entities for US federal income tax purposes. As such, these entities are not subject to entity-level federal income taxes but are subject to the special carried interest rules discussed under 3.6 Taxation of Carried Interest. Additionally, US fund managers often utilise two entities: a “management company” to receive the management fee, and the general partner of the fund to receive the carry. This has several benefits for US managers, including providing flexibility as to who participates in the economics of each entity as well as minimising state tax consequences to the principals. The management company can be structured as an LLC, an S corporation or a limited partnership. Various tax considerations (including US self-employment tax considerations, a desire to treat equity owners as employees, etc) affect which structure should be used by any given fund.

Tax Considerations for Non-US Managers

Whether a non-US manager will be subject to US federal income tax will depend on whether the manager is engaged in a trade or business in the United States, which in turn is heavily dependent on the applicable facts and circumstances; however, two important factors in such determination are whether the activities conducted in the United States are essential and directly related to the production of income, and whether the manager has a physical presence, such as an office or employees, in the United States. A non-US fund manager may find it beneficial to form a US subsidiary that is taxed as a corporation for US federal income tax purposes to conduct managerial activities in the United States, rather than exposing the non-US fund manager itself to any US federal income tax liability or reporting obligations.

If a fund has a US-based general partner or investment manager, such general partner or investment manager’s US presence should generally not cause a non-US fund or a non-US investor in a fund to be subject to US federal income tax as long as the activities of the fund consist predominately of passively investing in securities.

However, if a fund acts as a dealer in securities, the fund will be deemed to generate ECI for its non-US investors and UBTI for its US tax-exempt investors if such dealing activities occur in the United States. Additionally, certain activities, such as loan origination and investing in real estate and certain so-called “US real property holding corporations”, can also be expected to generate ECI and UBTI for non-US investors.

Carried interest is a tax-efficient way to compensate principals of the general partner of the fund. Carried interest reflects a right to future undetermined profits of the fund above a certain performance threshold, and accordingly is not taxable upon grant by the general partner of the fund.

Furthermore, carried interest allocations are not taxed as compensation. Instead, the character (as ordinary income, short-term capital gain or long-term capital gain) of amounts allocated with respect to carried interest is the same as it was when recognised by the partnership, except that long-term capital gain recognised by a partnership on the sale of an asset held for not more than three years is treated as short-term capital gain (which, at the time of publication, is taxed at the same rate as ordinary income) when allocated to a non-corporate holder of carried interest. In addition, capital gain recognised by a carried-interest holder on the sale of its carried interest is treated as short-term capital gain rather than long-term capital gain if the carried interest was not held for more than three years prior to being sold.

Managers are permitted to outsource a substantial portion of their investment functions or business operations, but remain responsible for ensuring effective compliance with their regulatory obligations and for exercising reasonable oversight of service providers. The SEC’s proposed Rule 206(4)-11 on outsourcing covered functions was withdrawn in June 2025; the withdrawal did not create a safe harbour or remove existing oversight obligations. See 2.9 Rules Concerning Service Providers.

See 2.8 Local/Presence Requirements for Funds.

RIAs, CPOs and CTAs managing alternative funds are not subject to any regulatory capital requirements or other local substance requirements under applicable federal law and related SEC, CFTC and/or NFA rules (as applicable).

Section 205(a)(2) of the Advisers Act generally makes it unlawful for an RIA to enter into or perform an investment advisory contract unless the contract provides that no assignment may be made by the adviser without client consent. An assignment generally includes a direct or indirect transfer or hypothecation (ie, pledging) of the advisory contract and a change in actual control or management of the adviser. A transaction that does not result in a change of actual control or management is not an assignment, and a person with 25% or more of a class of voting securities of an RIA is presumed to have control.

In 2025, the SEC withdrew its proposed predictive-data-analytics rule that would have addressed conflicts arising from an adviser’s use of covered technology, including algorithms and artificial intelligence (AI), in investor interactions. No AI-specific final rule has been adopted. Advisers nevertheless remain subject to existing fiduciary, anti-fraud, compliance and marketing obligations when using such technologies.

The SEC’s Spring 2026 regulatory agenda indicated that the SEC staff was considering whether to recommend a re-proposal addressing AI and other predictive data analytics. This remains an agenda-stage possibility; it is not a proposed rule or a current legal requirement.

Common categories of investors include US government plans, corporate benefit plans, financial institutions, sovereign wealth funds, family offices, university and charitable endowments and high net worth individuals. Investments in funds are often structured to accommodate the tax and other legal and regulatory needs of certain investors.

There are currently no federal securities laws that categorically prohibit side letters. Side-letter arrangements nevertheless remain subject to fund governing documents, contractual obligations, the Advisers Act’s fiduciary and anti-fraud provisions, and Rule 206(4)-8, as applicable.

See 2.2 Regulatory Regime for Funds and 3.3 Regulatory Regime for Managers for descriptions of the applicable investor qualification standards under the Securities Act, Investment Company Act, Advisers Act and CEA.

No General Advertising or Solicitation

As highlighted in 2.3 Regulatory Regime for Funds and 3.3 Regulatory Regime for Managers, alternative funds typically offer interests to US investors in Rule 506(b) offerings and thus may not engage in general solicitation or general advertising in connection with the offering.

“Bad Actor” Disqualification

The SEC has adopted certain “bad actor” disqualification provisions for Rule 506 of Regulation D under the Securities Act. As a result of the Rule 506(d) bad actor disqualification, an offering of securities is disqualified from relying on Rule 506(b) and 506(c) of Regulation D if the issuer or any other person covered by Rule 506(d) has a relevant criminal conviction, regulatory or court order or other “disqualifying event”.

The final rule provides an exception from disqualification when the issuer is able to demonstrate that it did not know and, in the exercise of reasonable care, could not have known that a covered person with a disqualifying event participated in the offering. The steps an issuer should take to exercise reasonable care will vary depending on particular facts and circumstances.

The SEC’s Marketing Rule

The SEC’s Marketing Rule (Rule 206(4)-1) applies to RIAs and has been subject to mandatory compliance since 4 November 2022. It modernised the rules governing adviser advertising and compensated promoters. ERAs are not subject to Rule 206(4)-1 solely by virtue of ERA status, but remain subject to the Advisers Act anti-fraud provisions, including Rule 206(4)-8 for pooled investment vehicles.

The Marketing Rule (which generally applies to “advertisements” for advisory services, as well as paid endorsements or testimonials) generally prohibits:

• making untrue statements of a material fact (or omissions thereof);
• making material statements of fact without a reasonable basis (or the ability to substantiate such statements upon demand by the SEC);
• discussing potential benefits without providing fair and balanced treatment of associated material risks or limitations;
• referencing specific investment advice provided by the adviser that is not presented in a fair and balanced manner;
• including or excluding performance results, or presenting performance time periods, in a manner that is not fair and balanced; and
• including information that is otherwise materially misleading.

The Marketing Rule also prohibits the use of testimonials and endorsements in an advertisement, unless the adviser satisfies certain disclosure, oversight and disqualification provisions, including:

• clear and prominent disclosure of whether the person giving the testimonial or endorsement (the “promoter”) is a client or is being compensated (together with additional disclosures regarding compensation and conflicts of interest); and
• adviser compliance and oversight of such testimonial or endorsement’s compliance with the marketing rule.

The rule prohibits the use of third-party ratings in an advertisement, unless the adviser provides disclosures and satisfies certain criteria pertaining to the preparation of the rating.

Finally, the rule generally prohibits including in any advertisement:

• gross performance, unless the advertisement also presents net performance;
• any statement that the SEC has approved or reviewed any presentation of performance results;
• performance results from fewer than all portfolios with substantially similar investment policies, objectives and strategies as those being offered in the advertisement, with limited exceptions;
• performance results of a subset of investments extracted from a portfolio, unless the advertisement provides, or offers to provide promptly, the performance results of the total portfolio;
• hypothetical performance (which does not include performance generated by interactive analysis tools), unless the adviser adopts and implements policies and procedures reasonably designed to determine that the performance is relevant to the likely financial situation and investment objectives of the intended audience and the adviser provides certain information underlying the hypothetical performance; and
• predecessor performance, unless there is appropriate similarity with regard to the personnel and accounts – in addition, the advertising adviser must include all relevant disclosures clearly and prominently in the advertisement.

The SEC updated its Marketing Compliance FAQs on 19 March 2025 to address the presentation of gross and net performance when using subscription facilities and model fees, and again on 15 January 2026 to address promoter disqualifications.

Marketing to US State and Local Government Entity Investors

Rule 206(4)-5 under the Advisers Act (the “Pay to Play Rule”) is generally designed to address pay-to-play abuses involving campaign contributions to government officials who are in a position to influence the selection of investment advisers to manage government client assets, including the assets of public pension funds and other public entities. Among other things, Rule 206(4)-5 prohibits certain investment advisers from providing investment advisory services for compensation to a government client for two years after the adviser or certain of its executives or employees makes a campaign contribution to certain elected officials or candidates who can influence the selection of certain investment advisers.

In soliciting investments from any US state or local government entities, investment advisers should consider any applicable US state or local lobbying rules that may apply.

Sponsors of private funds are able to raise capital from qualified high net worth investors based on the applicable exemptions under the Investment Company Act and Securities Act. For private funds structured to rely on the Section 3(c)(1) exemption of the Investment Company Act, the private fund’s securities generally can be held by no more than 100 beneficial owners, subject to look-through and anti-pyramiding rules. Qualifying venture capital funds may have up to 250 beneficial owners only if they also satisfy the applicable venture capital fund requirements and the current USD12 million aggregate capital contributions and uncalled committed capital limit under SEC Rule 3c-7, effective 30 September 2024. For private funds structured to rely on the Section 3(c)(7) exemption of the Investment Company Act, the private fund’s securities can be held solely by ultra-high net worth investors that qualify as “qualified purchasers” under the Investment Company Act. Sponsors are permitted to form two parallel funds, one 3(c)(1) private investment fund and the other a 3(c)(7) qualified purchaser fund, and the two funds are not integrated for purposes of determining qualification.

In addition to private funds, registered investment companies (such as mutual funds, exchange-traded funds (ETFs), closed-end funds, business development companies (BDCs) and interval funds) can offer interests to retail investors through registered offerings complying with the Securities Act and Investment Company Act disclosure and prospectus delivery requirements. Once securities are registered and sold (or listed) in a public offering, they are available to retail investors.

Executive Order 14330 and the United States Department of Labor’s 31 March 2026 proposed rule may facilitate broader investment in alternative assets by pension plans, 401(k) plans, self-directed individual retirement accounts and other retirement investment vehicles. This may increase investment opportunities in alternative strategies through direct private fund investments where the investor satisfies the applicable private placement, Investment Company Act and ERISA/Code requirements. In selecting these products, plan fiduciaries and advisers must still comply with applicable laws, including ERISA’s fiduciary duty requirements.

Alternative funds are subject to the requirements of the Securities Act concerning private placements of their securities to US persons or via US jurisdictional means. Most funds typically rely on the registration exemption provided by Section 4(a)(2) of the Securities Act, and the “safe harbour” of Rule 506 under Regulation D under the Securities Act. Sponsors seeking to access larger pools of high net worth investors using general solicitations or advertising may consider Rule 506(c) under Regulation D. Rule 506(c) allows issuers to offer and sell securities through general solicitation or advertising, provided that all purchasers are accredited investors and the issuer takes reasonable steps to verify each purchaser’s accredited status (beyond simply relying on purchaser representations). Sponsors relying on Rule 506 should be mindful of the authority of US states to enforce their anti-fraud laws and to require notice filings depending on the applicable state securities laws. 

Many funds (in particular, private equity funds) will use placement agents to market fund interests. A person engaged in effecting securities transactions for the account of others generally must register as a broker-dealer under the Exchange Act or rely on an available exemption. Whether a placement agent’s or adviser’s communications are subject to the Marketing Rule depends on the person’s role and the adviser’s registration status; ERAs remain subject to applicable anti-fraud requirements (see 4.4 Rules Concerning Marketing of Alternative Funds).

In addition, the manner in which an investment adviser compensates its employees in connection with US marketing activities can raise broker-dealer concerns. Determining whether a person is a broker-dealer can be fact-intensive. One of the most frequently considered facts is whether such employee receives compensation directly or indirectly related to transactions in securities of the fund or its portfolio companies.

Exchange Act Rule 3a4-1 generally provides that an associated person (or employee) of an issuer who participates in the sale of the issuer’s securities would not have to register as a broker-dealer if that person, at the time of participation:

• is not subject to a “statutory disqualification”, as defined in Section 3(a)(39) of the Exchange Act;
• is not compensated by payment of commissions or other remuneration based directly or indirectly on securities transactions;
• is not an associated person of a broker or dealer; and
• limits its sales activities as set forth in the rule.

US federal and state tax consequences depend on the jurisdiction and the tax status of each particular investor in a fund.

US Tax-Exempt Investors

US tax-exempt investors, such as charitable organisations, pension funds, private foundations and individual retirement accounts, are generally exempt from US federal income taxation except to the extent that they earn UBTI, which can arise when a fund that is a pass-through entity for US federal income tax purposes borrows money to fund its investments. In addition, UBTI can arise if a fund is itself engaged in a US trade or business or invests in pass-through portfolio companies conducting a US trade or business. Blocker structures or parallel funds can be utilised to minimise UBTI for US tax-exempt investors.

US Taxable Investors

A typical US non-corporate investor is subject to US federal income tax at a maximum rate of 37% plus an additional 3.8% tax applicable to the investor’s net investment income. A typical US corporate investor is subject to US federal income tax at a rate of 21%. Various limitations may apply to a US non-corporate investor’s ability to deduct certain losses and expenses. Some of these limitations may depend on the activities of the fund – eg, management fees are generally a non-deductible expense for funds that are not engaged in a US trade or business. A US corporate investor is typically not subject to such limitations.

Non-US Investors

Withholding tax

US withholding taxes of 30% generally apply to certain types of non-business income (typically, US-source dividends and certain dividend equivalent income, and limited types of US-source interest income – commonly referred to as Fixed, Determinable, Annual or Periodical (FDAP) income) allocable by a US fund to non-US investors. Certain exemptions or reductions in tax rate may be available under applicable tax treaties. Foreign governments and sovereign wealth funds are not subject to US withholding tax on certain types of US-source income, including dividends and interest. Capital gain income is also not generally subject to US income or withholding tax unless it is attributable to investments in US real property interests.

Income tax

Non-US investors can also be subject to US federal income tax on income and gains that are ECI. For example, loan origination by a fund may be treated as generating ECI, which would require a non-US investor to pay US federal income tax and file a US income tax return. Domestic funds with non-US investors are required to make quarterly tax payments to the Internal Revenue Service (IRS) on account of ECI allocable to non-US investors, and must withhold US tax from redemption payments to the extent attributable to ECI-generating investments. Additionally, non-US investors may be required to file tax returns and pay taxes in US states where the fund generates ECI.

Utilisation by Investors

Non-US investors in funds may be able to claim tax treaty benefits (typically, a reduction in or complete exemption from the 30% US withholding tax described above) under an income tax treaty between their jurisdiction of residence and the United States. Certain other treaty structures, such as using a manager who is an independent agent in the United States, can be utilised by foreign investors who desire to invest in loan origination funds and avoid ECI. In order to establish eligibility to claim tax treaty benefits, a non-US investor should claim such benefits on an applicable IRS Form W-8 provided to the fund.

Structuring Issues

Certain jurisdictions, such as Germany and the United Kingdom, may limit the availability of tax treaty benefits to a resident of those jurisdictions that invests in a fund organised as an LLC rather than as a limited partnership. For this reason, US funds that are targeting non-US investors may choose to be organised as limited partnerships rather than as LLCs.

Under FATCA, US funds are generally required to collect and remit a 30% US withholding tax on their payments of US-source dividends and interest to a non-US “foreign financial institution” or “non-financial foreign entity” (each as defined) unless such non-US person makes certain certifications or provides certain information relating to its US owners or qualifies for exemption from FATCA.

Typically, a US fund will obtain an appropriate IRS Form W-8 from its foreign investors that will include the requisite FATCA certifications. Different rules may apply to foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA.

During regulatory examinations, the SEC staff will typically request information regarding an investment adviser’s AML/KYC, sanctions and investor-onboarding controls, including information about private fund investors, as part of its review of compliance, custody, anti-fraud and related risk controls.

On 28 August 2024, FinCEN published the IA AML Rule, which would apply AML/CFT programme, SAR, record-keeping and related BSA requirements to covered SEC-registered investment advisers and ERAs, subject to specified exclusions and foreign-located scope. On 31 December 2025, FinCEN issued a final rule delaying the IA AML Rule’s effective date from 1 January 2026 to 1 January 2028. As of this submission, those IA AML Rule requirements are delayed rather than operative; the rule does not itself impose a categorical customer-identification or beneficial-ownership collection requirement.

Regulation S-P requires covered institutions, including RIAs, to maintain written policies and procedures addressing administrative, technical and physical safeguards for customer information. The 2024 amendments require an incident response programme, customer notice as soon as reasonably practicable and no later than 30 days when sensitive customer information was or is reasonably likely to have been accessed or used without authorisation (unless a reasonable investigation supports a determination that the information has not been and is not reasonably likely to be used in a manner that would result in substantial harm or inconvenience), service-provider oversight and records documenting compliance. Service providers must be required to notify the covered institution as soon as possible and no later than 72 hours after becoming aware of an applicable breach. Initial and annual privacy-notice requirements continue subject to statutory exceptions.

The Regulation S-P amendments became effective on 2 August 2024, with compliance dates of 3 December 2025 for larger entities and 3 June 2026 for smaller entities; both dates have passed as of this submission. The amendments are now part of the operative framework for covered institutions. Private funds relying on Section 3(c)(1) or 3(c)(7) are generally not themselves covered institutions, although their SEC-registered advisers may be.

On 7 August 2025, the President issued Executive Order 14330, “Democratizing Access to Alternative Assets for 401(k) Investors”. The Executive Order directed the Secretary of the United States Department of Labor, in consultation with the SEC, to issue guidance that clarifies ERISA fiduciary duties and proposes safe harbours relating to investment in alternative assets. On 31 March 2026, the United States Department of Labor published a proposed rule that would create a process-based safe harbour, though the proposal has not been adopted and does not change the current ERISA fiduciary duty obligations associated with investment in these types of assets.

The SEC’s Spring 2026 Regulatory Flexibility Agenda also includes a proposed rule-stage item, expected in October 2026, to enhance retail exposure to private markets. The agenda item has not yet resulted in a published proposed rule.

Other proposed rule-stage items in the SEC’s Spring 2026 Regulatory Flexibility Agenda that may affect investors in alternative funds include pay-to-play reform under Advisers Act Rule 206(4)-5, amendments to the investment adviser record-keeping rule, amendments to the custody rules and the regulatory status of finders under the Exchange Act. The agenda materials generally identify October 2026 as the expected action date for these items, although the agenda itself does not create operative legal requirements.