SEC Issues Interpretive Guidance On Amended Private Equity Fund Rules

The Securities and Exchange Commission (SEC) has recently issued interpretive guidance on the new private equity fund rules published on April 4, 2025, clarifying registration thresholds, proprietary investment requirements, and fee limitations. Below is a summary of the notable amendments and their implications for fund managers and sponsors.

1. Applicability and Registration Threshold (Amended Rule 558)

Under the amended Rule 558, all Private Equity Funds are subject to SEC authorization and registration. However, Private Funds with a target fund size of ₦5 billion or less are exempt from registration, provided they submit their governing documents to the SEC for a "no objection" prior to raising capital.

Clarification: The SEC has now clarified that, to obtain this "no objection," fund managers and sponsors must comply with the updated Ease of Doing Business Document (2025). This document includes a checklist to be executed by the boards of both the fund manager and sponsor, as well as a sworn undertaking, both of which must be notarized.

2. Minimum Proprietary Investment Requirement (Amended Rule 560(b))

The amended Rule 560(b) essentially provides that: (a) Where a Private Equity Fund targets pension fund assets, the fund manager must maintain a proprietary investment of at least 3% of the fund size. (b) Where a sovereign wealth fund or multilateral development finance institution (DFI) is an investor, the minimum proprietary investment is 1%.

Clarification: The SEC has clarified that this rule does not determine the types of funds pension fund administrators (PFAs) may invest in; rather, it prescribes the minimum ownership stake required of fund managers. The provision mirrors the Infrastructure Fund Rules (2017), reinforcing SEC's policy that fund managers retain a meaningful financial interest in the funds they establish. Fund managers and their funds remain subject to SEC registration and regulation.

3. Management Fees and Fund Expenses (Amended Rule 560(c))

Under amended Rule 560(c), the total management fees and expenses of a Private Equity Fund must not exceed 2% of the total sum raised in Nigeria.

Clarification: The SEC has clarified that this cap applies to the fund manager's fees and operational expenses, not to the fund's underlying expenses or investment-related costs. As with infrastructure funds, there is no regulatory ceiling on fund-level expenses for alternative investment schemes. Instead, caps are typically set on manager fees and incentive charges, with full disclosure of expense caps required as part of investor documentation.

Key Takeaway

The SEC's interpretive guidance and amendments aim to streamline compliance for smaller private equity funds, and enhance transparency on fees and governance. Fund managers and sponsors should review their internal policies to ensure consistency with the updated requirements, particularly regarding the ₦5 billion registration threshold, proprietary investment obligations, and fee disclosures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.