On August 23, 2023, the Securities and Exchange Commission (the SEC or the Commission) voted 3-2 to adopt a suite of new and amended rules (the Final Rules or the Private Fund Rules) applicable to investment advisers that advise private funds. Following a 12- to 18-month transition period, the new rules will restrict advisers from engaging in certain practices that, in the Commission's view, have the potential to harm private fund investors and will require, among other things, that advisers obtain annual private fund audits and provide private fund investors with detailed quarterly information on fund performance, expenses, and adviser compensation.

While far-reaching, the new rules are significantly scaled back from the version first proposed by the Commission in February 2022 (the Proposed Rules), which met with vigorous industry resistance and advocacy. In response, the Commission included key mitigations in the Final Rules, including a broad exemption for "securitized asset funds" (SAFs), defined to include "any private fund whose primary purpose is to issue asset backed securities and whose investors are primarily debt holders." The SAF exemption will generally exclude collateral managers from the Private Fund Rules as they would otherwise apply in respect of collateralized loan obligations (CLOs) and similar vehicles. Below, we consider the elements of the SAF exemption and related issues of potential relevance to collateral managers.

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