On January 11, 2023, the SEC’s Division of Investment Management published responses to certain frequently asked questions (FAQs) related to  Rule 206(4)-1 under the Investment Advisers Act of 1940 (Marketing Rule).[1]

Among other topics, the SEC clarified that net performance must be displayed each time gross performance is presented, including with respect to a single investment (e.g., in a case study). Specifically, the SEC noted that displaying the performance of one investment or a group of investments in a private fund would be considered “extracted performance” under the Marketing Rule and reiterated that the Rule’s net performance requirement applies to not only an entire portfolio but also to any portion of a portfolio that is included in extracted performance. This clarification puts to rest previous confusion in the market regarding the treatment of single investments under the Marketing Rule’s net performance provision.

The SEC further noted that it expects to periodically update its website to include responses to additional Marketing Rule FAQs.

[1] The full text of the FAQs and the SEC’s responses can be found here.