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    Aug. 14, 2025

Retailization of Private Funds: Incremental Changes Signal SEC Support (Part One of Two)

Recent SEC actions and public statements from its leaders signal a growing interest in allowing more retail investors to have access to the private funds space. So far, however, the regulators have largely pursued cosmetic changes without moving decisively to open the private funds market to retail investors. Although some developments are welcome, substantive reforms will require action at the legislative level that SEC leaders have so far shown little appetite to pursue. This article, the first in a two-part series on the so-called “retailization” of private funds, discusses the SEC’s mandate to protect retail investors, analyzes the recent reforms and presents experts’ commentary on what those reforms have addressed and failed to address. The second article will offer legal analysis of what expanded retail investor access to the private funds space would mean in practice for investors and managers and consider the serious challenges such access would entail. See “Advances and Challenges in ‘Retailization’ of Alternative Investment Products” (Jun. 19, 2025).

SEC Regulatory and Examination Priorities in 2025

As SEC Chair Paul S. Atkins and other top agency officials publicly voice their approval of broadening retail investor access to private funds, and their disapproval of regulation by enforcement, a perception has taken hold that the highly aggressive stance that characterized Gary Gensler’s SEC is a fading vestige of a past era. Some even question the need for close engagement with counsel possessing expertise in the regulatory and enforcement arena – especially as staff reductions at the SEC pare down the resources available for examinations, investigations and litigation. But that sense is mistaken, legal experts assert. Despite the possible expansion of retail access to private funds and staff departures, the SEC retains its core areas of focus. Fund managers that fall afoul of high standards with regard to internal policies and procedures; regular reviews of those procedures; the “best interest” standard enshrined in Regulation BI; disclosures; and artificial intelligence, among other areas, can expect to find themselves under scrutiny. Those points were discussed in a session of the Morgan Lewis 2025 Hedge Fund Conference, entitled “Regulatory and Examination Priorities for Private Fund Advisers.” The panelists were Morgan Lewis partners Christine M. Lombardo, Christine Ayako Schleppegrell and John J. O’Brien. This article summarizes key takeaways from their discussion. See our two-part series on the anniversary of the SEC’s Examinations Division: “Its Creation and Evolution Over the Last 30 Years” (Apr. 10, 2025); and “Its Present State and Possible Future” (Apr. 24, 2025).

CFTC Advisory Cautions Firms to Remain Compliant When Deploying AI

Recognizing that artificial intelligence (AI) may eventually reach virtually all aspects of the lifecycle of a derivatives trade, the staffs of the CFTC Divisions of Clearing and Risk; Data; Market Oversight; and Market Participants issued an advisory (Advisory) concerning the use of AI in CFTC-regulated markets. Although the Advisory breaks little new ground, it highlights areas where staff believe different types of registrants and supervised market participants may deploy AI and the relevant CFTC regulations and core principles implicated by such deployment. The Advisory emphasizes that whenever a firm deploys AI – whether created in-house or by a third party – it remains subject to the entire CFTC regulatory regime. Use of AI technology does not give firms a pass on compliance. This article parses the Advisory and related statements of the CFTC’s then-Chairman Rostin Behnam and Commissioner Kristin N. Johnson. See “Acting SEC and CFTC Chairs Emphasize Getting ‘Back to the Basics’” (May 8, 2025).

SEC Penalizes Firms for AML-Related Violations

On August 28, 2024, the Financial Crimes Enforcement Network (FinCEN) adopted final anti-money laundering (AML) rules for investment advisers, which were set to take effect on January 1, 2026. However, on August 5, 2025, FinCEN issued an order delaying that effective date until January 1, 2028, indicating its intention to revisit the scope of the rules at a later date. Nonetheless, a pair of SEC settlements serve as a reminder that although advisers are not yet required to have AML programs, those that do must ensure their AML processes align with their representations to investors regarding such programs. For example, the SEC fined an investment adviser that represented that it would confirm its investors’ identities and sources of funds but then failed to do so with respect to certain investors. Similarly, firms required to have AML programs must ensure they implement them effectively. In that regard, the SEC fined a broker-dealer that allegedly failed to follow its AML policies and procedures and maintain records regarding its customer due diligence activities. This article discusses both settlements, with commentary from Madelyn Calabrese, partner at Haynes and Boone. See our two-part series on FinCEN’s final AML rules: “Parsing FinCEN’s Final AML Rules” (Nov. 7, 2024); and “Understanding the Implications for Hedge Fund Managers” (Nov. 21, 2024).

Seed Deal Study: Alignment Between Seeders and Managers and Seeders and Other Investors

Recent seed deal terms reflect an alignment of interests between seeders and managers, as well as between seeders and other investors, according to Seward & Kissel’s eleventh annual study of seed transaction deal points (Study), which is based on data from the 2024 calendar year. “Seeders are focused on being the best partner they can be and are mindful that any term that pressures a manager’s ability to be maximally effective when fundraising should be carefully considered and precisely scoped,” C. Gerhard Anderson, III, partner at Seward & Kissel and lead author of the Study, told the Hedge Fund Law Report. “The continued focus on aligning the seed investor’s interests with the interests of the manager and the other fund investors remains a core orienting principle, and the most successful seeders are curating their asks and needs accordingly.” For example, most seed deals now include working capital support for the manager. Other areas covered by the Study include revenue shares, lockups, key person provisions, termination of seeder economics and ongoing seeder rights. This article examines the key takeaways from the Study, with additional commentary from Anderson. See “Study Tracks Evolving Seed Deal Terms” (Aug. 18, 2022).

Former SEC Counsel Nick Losurdo Joins Kirkland & Ellis in Boston

Kirkland & Ellis has announced that Nick Losurdo has joined the firm as a partner in the investment funds group. Based in the firm’s Boston office, Losurdo advises financial institutions, public companies and investors on regulatory, transactional and strategic matters. He focuses on broker-dealers, exchanges and other trading platforms, with deep knowledge of SEC and FINRA rules. For insights from another Kirkland partner, see “Present and Former SEC Officials Discuss Strategy, Testimony, Proffers and Negotiations” (Feb. 27, 2025).

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Women to Watch: Contributions, Achievements and Observations of Outstanding Female Professionals

To mark International Women’s Day, women editors and reporters at ION Analytics interviewed outstanding women in the industries and jurisdictions we cover. In this part, Law Report Group editors Jill Abitbol, Robin L. Barton and Megan Zwiebel profile notable women in data privacy, cybersecurity, private funds and anti-corruption law, including Anne-Gabrielle Haie, Jessica Lee, Micaela McMurrough, Laura Perkins, Amanda Raad, Madelyn Calabrese, Ranah Esmaili and Genna Garver. Enjoy reading their inspiring remarks here.