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    Aug. 28, 2025

Retailization of Private Funds: Practical Consequences (Part Two of Two)

Amid all the recent hype about the expansion of retail investor access to private funds, critical questions about the suitability of fund products and strategies for such investors, and the potential regulatory consequences for fund managers that opt to work with relatively unsophisticated investors, have gone unaddressed. In the view of some legal experts, much of the discussion about expanding retail access to private funds has considered the issue largely from the point of view of investors – without asking necessary questions about whether and on what terms fund managers should even consider onboarding retail investors in the pursuit of higher assets under management. Proper consideration of the issue should be far more holistic in nature, looking at such issues as investor suitability; liquidity constraints that newly onboarded retail investors will face; fee considerations; the rights of retail investors relative to large institutional investors; and regulatory and reputational concerns. This second article in a two-part series on the so-called “retailization” of private funds offers legal analysis of what expanded retail investor access to the private funds space would mean in practice for investors and managers, and considers the serious challenges such access would entail. The first article discussed the SEC’s mandate to protect retail investors, analyzed the recent reforms and presented experts’ commentary on what those reforms have addressed and failed to address. See “A Look at the State of the Industry on the 75th Anniversary of the First Hedge Fund’s Launch” (Oct. 24, 2024).

ACA Compliance Testing Survey: AI and AML Are Now Top Compliance Concerns

This year’s most pressing compliance issues concern deployment of artificial intelligence and predictive analytics (together, AI) and anti-money laundering (AML) requirements, according to the 2025 Investment Management Compliance Testing Survey conducted by ACA Group in collaboration with the Investment Adviser Association and Yuter Compliance Consulting. AI and AML have displaced marketing and electronic communications as top concerns. This year’s study covered compliance program staffing, testing and budgets; examination experience; AI deployment; AML programs; performance advertising; books and records; electronic document delivery; electronic communications; cybersecurity; digital assets; and whistleblower protections. This article distills the survey’s findings. See “ACA Compliance Testing Survey: Electronic Communications Displace Marketing As Top Concern” (Jan. 30, 2025).

Mitigating “Shadow Trading” Risk in the Post-Panuwat Environment

On April 5, 2024, a jury found Matthew Panuwat liable for insider trading under the SEC’s novel “shadow trading” theory. When Panuwat learned that his company was about to be acquired, he placed trades in a peer company in the same industry whose stock price was likely to be affected when the acquisition was announced. There is considerable concern that the SEC may apply this theory to trading by fund and asset managers, which often have multiple trading desks that may inadvertently and innocently trade in the securities of one company while a correlated company is on the manager’s restricted list. A program presented by the Alternative Investment Management Association (AIMA) took a deep dive into Panuwat and the case’s implications for private fund managers, as well as steps managers can take to mitigate the risks associated with shadow trading. The program, which was moderated by senior AIMA advisor Suzan Rose, featured Scott Black, chief legal officer and CCO at Hudson Bay Capital Management LP and former senior trial counsel and Assistant Regional Director in the SEC Division of Enforcement; and Robert S. Frenchman, partner at Dynamis LLP. This article distills their insights. See “SEC’s Novel ‘Shadow Trading’ Enforcement Action Gains Traction After Denial of Defendant’s Motion to Dismiss” (Mar. 3, 2022).

SBAI’s New Standards and Guidance on Valuing Illiquid Assets

The Standards Board for Alternative Investments (SBAI) published two documents that outline ongoing concerns about valuation methodologies and offer ideas and proposals for improving industry practices. The first document is the “Valuation Standards – Review of existing Standards and proposal for addition of new Standards specific to Private Market Assets” (Consultation Paper), which proposes updates to SBAI’s Alternative Investments Standards (Standards), a framework for assessing the quality of fund managers’ valuation processes for illiquid assets. Concurrent with releasing the Consultation Paper, the SBAI issued its “Private Market Valuations: Governance, Transparency, & Disclosure Guidelines” (Guidance). The Guidance suggests alternative methodologies to value illiquid assets; considerations when using independent valuation agents; and considerations as to private market secondaries. This article briefly summarizes the Standards, the revisions proposed in the Consultation Paper and key points raised in the Guidance, along with insights and commentary from Alston & Bird partner Heather N. Wyckoff. For other SBAI guidance, see “SBAI Memos Discuss Implementation of Responsible Investing in Alternative Strategies” (Jan. 20, 2022); and “SBAI Issues Culture and Diversity Strategies Framework” (Nov. 18, 2021).

SEC and CFTC Settle Actions Against Adviser That Allegedly Misrepresented Risk Management Processes

In May 2021, the SEC and CFTC commenced parallel civil enforcement actions in the U.S. District Court for the Northern District of Illinois (Court) against two investment advisers; their founder and principal; and their co-portfolio manager (collectively, Defendants). The funds managed by the advisers, which followed a short options strategy, lost most of their value and collapsed in early 2018 during an abrupt market gain and increase in volatility. The agencies alleged that the Defendants defrauded investors by making material misrepresentations about the worst-case loss scenarios of their investment strategies and maintaining a consistent risk level within their portfolios. On June 30, 2025, after the Court denied the parties’ cross-motions for summary judgment, the Defendants settled both actions, agreeing to pay more than $6 million in sanctions. This article details the background of the enforcement actions and the final judgments against the Defendants. See “High‑Profile Risk Management Misrepresentation Could Personally Cost Portfolio Manager $13.6 Million” (May 26, 2022).

Dechert Beefs Up New York and D.C. Offices

Robert Shapiro has joined Dechert as a partner in its financial services practice group in the Washington, D.C., office, while the New York office has added Megha Kalbag. Shapiro has public and private sector experience, with a background in securities regulation and investment management. Kalbag’s expertise includes securities and commodities regulation, including digital asset regulation, financial market infrastructure, trading platforms, the U.S. Treasury clearing mandate and transactional work in the derivatives and structured products spaces. For insights from other Dechert partners, see “What Fund Managers Should Know About the FTC’s Ban on Non‑Competes” (Jun. 6, 2024).

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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.