SEC Issues Guidance Update with Respect to Privately Offered Securities under the Custody Rule

The SEC has released new guidance with respect to Rule 206(4)-2 under the Investment Advisers Act. The Guidance provides relief to private fund sponsors by expanding the coverage of the “privately offered securities” exception in the Custody Rule to certain certificated, privately offered securities. Subject to the conditions set forth in the Guidance, registered investment advisers to private funds that have financial statements prepared in accordance with the generally accepted accounting principles (GAAP) and that are audited at least annually will no longer need to arrange for a qualified custodian to hold custody of certificated “privately offered securities.” As stated in further detail below, such relief was previously only available to certain uncertificated privately offered securities.

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