TL;DR. The Private Fund Adviser Rule was the SEC's August 2023 package of five rules and two amendments on fund fees, expenses, audits, secondaries, and preferential treatment. The Fifth Circuit vacated the whole package in June 2024, so none of it is in effect. The Advisers Act, fiduciary duty, and SEC scrutiny of fee and expense allocation still apply.
The compliance memos explain the regulation accurately and stop at the legal conclusion. None answer the question a controller actually has: the rule was about fees and expenses, so what do I have to be able to produce about my allocations when an examiner shows up? That is the part that survived the vacatur, and it is what this post covers, backed by data from 80 fund finance teams.
What is the Private Fund Adviser Rule?
The Private Fund Adviser Rule is the package of regulations the SEC adopted on August 23, 2023 under the Investment Advisers Act of 1940. It contained five new rules and two amendments aimed at how private fund advisers handle fees, expenses, audits, adviser-led secondaries, and preferential treatment of investors. The SEC announced it as the largest expansion of private fund oversight in a generation, and the final adopting release ran more than 600 pages.
The Private Fund Adviser Rule is the SEC's August 2023 package of five rules and two amendments under the Investment Advisers Act of 1940, covering quarterly fee and expense statements, annual fund audits, restricted activities, adviser-led secondaries, and preferential treatment. The Fifth Circuit vacated it in June 2024, so it is not in force.
It was published in the Federal Register on September 14, 2023 with tiered compliance dates, and never reached most of them. To understand why people still search this term, you need the five rules, the vacatur, and the one thing the court left standing.
The five rules, in plain English
Four of the five are, at their core, about money moving between a fund and its adviser. That is why this is an allocation story, not just a compliance one.
Quarterly Statements Rule. Advisers would have had to send investors a statement each quarter detailing the fees and expenses charged to the fund and to portfolio companies, plus performance. Line-level visibility, not a lump sum.
Private Fund Audit Rule. Each private fund would have needed an annual financial-statement audit by an independent public accountant, with the statements distributed to investors. A second set of eyes on what the fund actually paid.
Restricted Activities Rule. This one limited what an adviser could charge the fund without consent or disclosure. The sharpest provision: an adviser could not charge the fund for the costs of an SEC investigation that ended in a sanction for violating the Advisers Act. Certain regulatory and compliance costs and borrowing from the fund were also restricted.
Adviser-Led Secondaries Rule. Before running a secondary where the adviser is on both sides, the adviser would have needed a fairness or valuation opinion from an independent provider. A guardrail on the conflict baked into GP-led continuation funds.
Preferential Treatment Rule. Advisers could not give some investors better liquidity or information terms that would materially hurt others, and had to disclose other preferential terms. Side letters, in plain English.
The two amendments are quieter but matter for the record-keeping point later. One required every registered adviser to document its annual compliance-program review in writing; the other required keeping the support for the new statements, audits, and opinions. Both reduce to "write down what you did and keep it," which is exactly what an exam asks for whether the rule exists or not.
The Fifth Circuit vacatur, June 2024
On June 5, 2024, the US Court of Appeals for the Fifth Circuit vacated the entire package. The court held that the SEC had exceeded its statutory authority, and its language was blunt: no part of it can stand. The SEC's own announcement confirms the ruling and lists every vacated provision, and the final-rule page reflects the technical amendments that walked the rules back out of the Code of Federal Regulations.
Be precise here, because half the pages on this topic are dated before the ruling and read as if the rules are coming. They are not. There are no quarterly-statement obligations, no mandatory fund-audit rule, no restricted-activities prohibitions flowing from this package. A rehearing or a Supreme Court appeal was always unlikely, and none revived it.
What the ruling did not touch is the Advisers Act underneath it. That is where the controller's real work begins.
Adopted, vacated, and what survived.
The part that survived: this is really an allocation problem
Here is the part the legal memos mention in a sentence and then drop. The rules are gone; the duties they were built on are not. Every adviser is still bound by the Advisers Act and its fiduciary duty, and the SEC has long read many of the same activities the rule named as already potentially improper. Fee and expense allocation has been a standing priority for the SEC's Division of Examinations for years, and the vacatur did not take it off the list.
Read the five rules again with that in mind. Quarterly statements detailing fees and expenses. Restrictions on charging certain costs to the fund. A prohibition on preferential terms that hurt other investors. Strip the regulatory language and every one of those is a statement about what gets allocated to which fund, on what basis, with what proof. The rule was an attempt to codify good allocation hygiene. The court struck the code, not the hygiene.
So the vacated package now works as a de facto blueprint. An examiner who can no longer cite the Quarterly Statements Rule will still ask whether you can show, per fund, which fees and expenses you charged and why. A controller who treats the dead rule as a checklist of what to be able to produce is not over-complying. They are getting ready for the exam that is still coming.
In our 2026 analysis of 80 PE and VC fund finance teams, 96% (77 of 80) named multi-entity allocation a core complexity and 92% (74 of 80) run it across disconnected systems. Quarterly fee and expense reporting, the thing the rule wanted, is only ever as accurate as the allocation sitting under it across all those separate sets of books. Even with the rule gone, LP-side bodies like ILPA keep pushing for clearer fee and expense reporting, and you cannot report cleanly on a split you cannot reconstruct. Full data on how funds actually handle this is in the state of fund expense allocation 2026.
Can a private fund adviser charge legal and investigation costs to the fund?
This is where the Restricted Activities Rule and the daily reality of a legal invoice meet. The rule would have flatly barred charging the fund for the costs of an SEC investigation that resulted in an Advisers Act sanction. Even with the rule vacated, charging the fund for the adviser's own regulatory trouble is the exact fact pattern an exam treats as a misallocation, because it is a cost that benefited the adviser dressed up as a fund expense.
The decision is rarely about a whole invoice. It is line by line. An outside-counsel bill arrives with twenty-five time entries: some are deal diligence that belongs across the funds that invested, some are fund-formation work for a single fund, some are management-company matters, and one or two might be the adviser's own regulatory defense, which should never touch the fund. Each line is its own allocation call. Get the regulatory line wrong and you have created the precise exposure the rule was aimed at, vacated or not.
This is not a corner case. In our dataset, 63% of teams (50 of 80) named legal-invoice allocation one of their hardest problems. One growth-equity controller we interviewed described getting "one invoice that sometimes gets allocated over like 10 different funds," split by hand every time. A single bill can need committed-capital splits on the deal lines, a specific-fund assignment on the formation lines, and a clean exclusion on the regulatory line, all at once. The method-per-line detail is in the legal-invoice allocation benchmark, and the deeper question of what the fund can bear versus what the management company absorbs is covered in fund versus management company expenses.
The audit trail the SEC still expects
If you take one operational thing from the whole rule and its undoing, take this: be able to evidence your fee and expense decisions. The Quarterly Statements Rule, the audit rule, the books-and-records amendment, all of it pointed at a record that survives an examiner. That expectation predates the rule and outlived it.
Nearly half of the teams we spoke with cannot meet it today. 49% (39 of 80) have a gap in their allocation audit trail: the split gets made, but the record of why each line went where it did does not survive in a form an examiner would accept. That number skews toward SEC-registered and PE firms, which is exactly the population the rule was written for. The SEC's Division of Examinations keeps fee and expense allocation on its priority list, and what it pulls on is the reasoning, not the arithmetic.
The reason the trail is so thin is the tool underneath it. 81% of teams (65 of 80) still run their allocations in Excel. One controller said it plainly: "we just keep a record of everything in excel and I'm sure the sec will love that when they come knocking." That is the whole thesis of this article in one sentence. The rule that would have forced a better record is gone. The examiner who wants the record is not. A spreadsheet maintained by one person, with no log of who allocated what or when, is the gap. The full benchmark on this is in the audit-trail gap report.
Who did the rule apply to, and what about the exemptions?
The package mostly reached registered investment advisers, but not entirely. Some provisions, including parts of the Restricted Activities and Preferential Treatment rules, were written to reach all private fund advisers, including exempt reporting advisers: the venture-capital and smaller private-fund advisers that file a short Form ADV but are not fully registered. A VC firm relying on the private fund adviser exemption or the venture-capital adviser exemption could still have been caught by pieces of it.
That distinction is academic now, but the fiduciary baseline underneath it is not. An exempt reporting adviser is still an adviser, and the duty to allocate fees and expenses fairly does not switch off because you skipped full registration. Many firms in our dataset sit exactly here: a new fund, a thin finance team, an LPA with a real expense section, and an SEC posture tightening as they raise.
A fund finance team's defensible standard now, vacated or not
There is no compliance deadline to chase anymore. There is still an exam to survive. A short, defensible standard covers most of it.
- Use one written allocation methodology per cost type, and apply it the same way every quarter. Consistency is what an examiner tests first.
- Document the basis on every line as you post it, not after the fact. The methodology, the approver, and the date should travel with the entry.
- Be able to show, per fund, exactly which fees and expenses it bore and why. That is the Quarterly Statements Rule's intent, and it is good practice regardless.
- Exclude the adviser's own costs from the fund. Regulatory defense, the firm's overhead, anything the LPA does not let the fund carry.
None of this is free if you do it by hand. Teams in our dataset spend one to five days a quarter on allocation alone, and one PE controller tracked more than 2,800 invoice line items manually in a single year. The payoff of a repeatable process is not elegance. It is that when the exam request lands, you produce the support in minutes instead of running the fire drill one controller described, where the finance manager "goes to do the audit and it's a mad rush to figure out which invoice goes where."
Where does Ceviche fit?
The judgment in allocation stays with the controller. What does not have to stay manual is the record after the decision. Ceviche reads the spend systems funds already use, applies the firm's allocation methodology per the LPA, and writes audit-ready journal entries back to the general ledger with the rationale, approver, and date attached. Flybridge runs it across 18+ fund entities on QuickBooks Online and Bill.com, producing an end-to-end trail from invoice to GL entry to the underlying support. You can see how Ceviche handles fund expense allocation.
FAQ
What happened to the private funds rule? The Fifth Circuit vacated it on June 5, 2024, holding that the SEC exceeded its statutory authority. The Private Fund Adviser Rule is not in effect: no quarterly-statement obligation, no mandatory fund-audit rule, no restricted-activities prohibitions from this package. The Advisers Act, fiduciary duty, and SEC exam focus on fees and expenses all remain in force.
What is the private funds rule? It was the SEC's August 23, 2023 package under the Investment Advisers Act of 1940: five rules covering quarterly fee and expense statements, annual fund audits, restricted activities, adviser-led secondaries, and preferential treatment, plus two amendments on compliance documentation and books and records. It was vacated before most of its compliance dates arrived.
What is the 80 20 rule in private equity? That phrase usually means carried interest: the customary split where limited partners take about 80% of profits above the hurdle and the general partner takes about 20% as carry. It has nothing to do with the Private Fund Adviser Rule. If you are here for the rule, the fee and expense piece is what touches your allocation work, not the carry split.
What is the private fund adviser exemption? It refers to the exemptions from full SEC registration, mainly the private-fund-adviser exemption and the venture-capital adviser exemption, that let smaller advisers and VC firms file as exempt reporting advisers. Some provisions of the vacated rule were drafted to reach exempt advisers too, and the underlying fiduciary duty to allocate fees and expenses fairly applies to them either way.
What does the Private Fund Adviser Rule mean for expense allocation? At its core the rule was an allocation rule. Quarterly statements, restricted activities, and preferential-treatment limits were all about which fees and expenses hit which fund and on what basis. Even vacated, it reads as a blueprint: be able to show, per fund, what you charged, why, and with what support.
Even though the rule was vacated, what does the SEC still expect for fees and expenses? A consistent, documented allocation methodology, applied the same way each period, with a record of who allocated what and when. Fee and expense allocation is a standing exam priority, and examiners test whether costs that benefited the adviser were charged to funds and whether each split matches the fund documents.
Can a private fund adviser charge investigation or legal costs to the fund? General fund-level legal work the LPA permits, such as deal and formation matters, can be allocated to the funds that benefited. The adviser's own regulatory defense, including the costs of an SEC investigation that ends in a sanction, should not be charged to the fund. The vacated Restricted Activities Rule said so explicitly, and an exam treats that allocation as a misallocation regardless.
What records should a fund keep to evidence its expense allocations? For each allocated cost: the methodology used, the basis for the split, the entities it hit, who approved it, and when, with the source invoice attached. Built as you post rather than reconstructed later, that record answers the exam questions the vacated rule was trying to force.
