Chapter 4
US Marketing Compliance
US Marketing Rules & SEC Compliance
SEC Marketing Rule 206(4)-1: The 2025 enforcement landscape
Performance, Testimonials & Third-Party Ratings: What requires disclosure
If you’re an emerging asset manager aiming to raise Fund I or II in 2025-2026, the single biggest regulatory shift you must internalize isn’t about the vacated Private Fund Adviser Rules, it’s about the SEC Marketing Rule (Advisers Act Rule 206(4)-1). The private-fund package adopted in 2023 was vacated by the Fifth Circuit on June 5, 2024, and the SEC chose not to seek rehearing, so those specific amendments fell away. But the Marketing Rule remains fully effective, and it’s where examiners are spending real cycles.
During 2024 the SEC’s Division of Examinations ran multiple, targeted Marketing Rule reviews and published a Risk Alert highlighting common deficiencies. In September 2024 the Commission announced a coordinated sweep charging nine RIAs over Marketing Rule violations (unsubstantiated statements; testimonials/ratings without required disclosures). Expect ongoing scrutiny in 2025–2026; for first-time GPs with lean ops, exams can feel intense because the rule touches your deck, website, email copy, data room, and even social posts.
This guide translates that landscape into precise do’s and don’ts: how to present performance (gross vs. net the right way), how to use testimonials and ratings, how to write a defensible case study, what to keep in your files (and for how long), the red flags that have already drawn enforcement, and a practical, ILPA-compatible compliance playbook you can implement this week.
The Landscape Shift
Private Fund Adviser Rules
On June 5, 2024, the Fifth Circuit vacated the SEC’s 2023 private-fund rule package in full. In July 2024, the SEC did not seek rehearing, so the decision stands. Practically, you revert to the pre-2023 baseline on items like quarterly statements and preferential-treatment bans. Two caveats: some LPs will still ask for the vacated disclosures because they’ve built processes around them; and the Commission could re-propose targeted rules. Actionable takeaway: don’t toss the operational muscle you built, keep your reporting templates and fee/expense breakouts, but present them as voluntary LP reporting, not regulatory requirements.
The Marketing Rule is live
Advisers Act Rule 206(4)-1 has been fully in effect since Nov 2022 and was a top priority in 2024 exams. The Division of Examinations’ April 2024 Risk Alert flagged recurring misses: gross/net prominence, weak controls around hypothetical (model/back-tested) performance, missing testimonial/rating disclosures, and poor substantiation (no workpapers behind claims). In Sept 2024, the SEC brought a coordinated action against nine RIAs for Marketing Rule violations, clear signal that sweeps will continue.
What staff is actually testing
Performance presentation: Is net shown side-by-side with gross for the same periods and method? Are composites/carve-outs documented?
Testimonials/endorsements/ratings: Do you disclose client/investor status, compensation, conflicts, and criteria?
Case studies: Are selections representative? Can you prove your role and results?
Substantiation: When asked, can you produce the spreadsheets, benchmark memos, and source docs within hours, not days?
Why emerging managers feel it more
Smaller teams mean thinner documentation and looser version control across deck, website, emails, and data room, and the Marketing Rule is format-agnostic. Expand your “compliance surface area” smartly: create a Performance Compliance Memo that your deck footnotes point to, institute a one-page Benchmark Selection Memo for every index used,package Testimonial/Rating files (original text, consent, compensation, conflicts), and maintain a /204-2 Substantiation folder with all workpapers. Do this once and you’ll ship faster, answer fewer follow-ups, and withstand the inevitable exam.
Performance Presentation Rules
Think about performance in three layers: what you show, how you show it, and what you can prove on demand. If any one of those layers is weak, you invite exam findings, LP redlines, or both.
Gross vs. net, equal, adjacent, identical scope
If gross appears anywhere, net must appear right next to it, for the same period, using the same calculation method, with equal prominence. Equal means same slide/screen, same font size and weight, and visually comparable placement. Don’t tuck net into a footnote, the appendix, or a hyperlink, those fail the prominence test.
Design guardrail: build a slide master that locks two fields side-by-side (“Gross” and “Net”) with identical styling. Disable single-metric callouts for IRR or MOIC unless the paired metric is present. Add a pre-send “Gross/Net parity” check to your marketing QA.
Extracted/single-deal results: when you show a carve-out (one deal, a strategy sleeve, or “Fund I seed bucket”), label it “extracted performance” and include (or cross-reference on the same page) the total portfolio’s gross and net for the same period. Add one plain-English line explaining why the extract is informative (“illustrates our payer-channel thesis and pricing intervention playbook”).
Footnotes that help, not hide: state clearly whether fees, fund expenses, and carry are included; if net is pro forma, spell out the assumptions (e.g., “2%/20%, 8% pref, admin/audit costs included”).
Composites & carve-outs
Examiners and LP consultants will ask, “How did you build this number?” Prepare a 2-3 page Composite Methodology Memo that covers:
- Inclusion/exclusion rules: which accounts, which deals, how you treat partial exits, write-offs, and co-invest sleeves.
- Weighting: time-weighted vs. money-weighted returns; why that choice fits your strategy.
- Netting assumptions: fee base, carry waterfall (American vs. European), and which expenses are included.
- Outliers & dispersion: how you treat outliers, and a simple dispersion stat (e.g., interquartile IRR range).
On every slide that uses a composite, include a one-line summary: “Composite = all Fund I seed checks 2024-2025; time-weighted; net assumes 2/20 with fund expenses.” Keep the spreadsheet that implements the investment memo in your workpapers, with visible formulas and version stamps.
Hypothetical performance
Anything modelled, back-tested, or targeted is hypothetical. You can use it, but only with controls:
- Audience control: restrict distribution to sophisticated recipients (e.g., LP prospects in your pipeline). Do not post targets or back-tests on a public webpage.
- Labeling: watermark or prominent header “Hypothetical”; include criteria, assumptions, risks, and limitations right on the slide (don’t rely on an appendix).
- Process: name an owner for the model, keep a change log, and store the workbook (inputs, formulas, data sources, sensitivity tables) so you can hand it to an examiner.
Benchmarks
If you compare yourself to an index or peer set, pass the appropriateness test:
- Fit: strategy, sector, stage, geography, liquidity, leverage, and fee basis should be reasonably aligned. If no index fits perfectly, say so and explain why your choice is the least misleading.
- Disclosure: specify price vs. total-return, currency/hedging, and any material differences (e.g., “benchmark includes later-stage growth; we invest seed/Series A”).
- Memo: keep a Benchmark Selection Memo, one page per index, explaining rationale, data vendor, and limitations. Reference it in a small footnote on the slide.
Avoid switching benchmarks opportunistically. If you change, disclose when and why, and show overlap so readers can reconcile history.
Material modifications
If something big changes, new lead PM, thesis pivot (seed → growth), leverage policy, or a process overhaul, prior results may not be comparable. Don’t roll them up as if nothing changed.
- Presentation fix: split pre-/post-change periods, add a banner note (“Strategy broadened to growth in Q2-2025”), and consider providing both legacy and current composites.
- Narrative fix: add a brief paragraph on what changed in sourcing, underwriting, or value-creation and why it matters to future returns.
QA workflow
Before any pitch deck or website update goes live, run a Marketing Rule QA:
- Parity check: gross and net side-by-side, same periods/methods, equal prominence.
- Labels: “Extracted,” “Hypothetical,” and “Pro forma” clearly marked; fee/expense/carry mechanics in plain English.
- Workpapers: the spreadsheet that produced each figure, the Composite Memo, the Benchmark Selection Memo, and the model workbook for any hypothetical are saved in your archive, with version/date.
- Distribution record: who will receive which version and when (so you can issue corrections if needed).
Templates you can steal
Slide footer: “Gross and Net calculated using identical methodology; Net reflects 2% mgmt fee, 20% carry, and fund expenses; see Performance Compliance Memo §2.”
Extract label: “Extracted performance: single-deal illustration. See page X for total portfolio Gross/Net and dispersion.”
Hypothetical banner: “Hypothetical/Targets, not based on actual investor experience; assumes 2%/20%, reserves 1.25x, 30% loss ratio; distribution limited to professional investors.”
Testimonials & Third-Party Ratings
The Marketing Rule lifted the historic advertising ban on testimonials/endorsements/ratings, but only with guardrails.
- Testimonials & endorsements. You must disclose whether the promoter is a client/investor, whether they are compensated, and any material conflicts; you must also provide or offer disclosures so a prospective investor can understand the context. Oversight is required (e.g., pre-approval or a control on what gets posted).
- Third-party ratings (e.g., Preqin, Cambridge Associates). You need to be eligible for the rating under the provider’s methodology and disclose the criteria, the time period, and whether you paid for the rating or distribution. Avoid cherry-picking award logos without context. The September 2024 sweep charged firms that touted ratings/testimonials without required disclosures.
- Cherry-picking & typicality. If you select a few deals or quotes, explain why these and how typical they are. If they’re not representative, say so plainly. Maintain the selection logic in your files (e.g., “top 5 by realized MOIC; also showed loss case”).
- Attribution. Identify the source: “Testimonial from LP in Fund I (uncompensated)” or “Founder of Company X (portfolio company; not an investor).” State any compensation or non-cash benefits.
Case Studies & Track Record
Case studies persuade, but under the SEC Marketing Rule they’re ads, so they must be fair, balanced, and substantiated. Treat each one like a mini filing: clear selection logic, precise attribution, and numbers you can prove on demand.
Selection discipline
Decide how you pick examples before you write them (e.g., “one win, one base, one loss from investments made 2023–2025”). State that policy in a short Case Selection Rationale (1 page): population considered, filters applied, and why the chosen set is representative of outcomes and holding periods. If you truly showcase only winners, say so plainly and explain that results are not representative of all investments. Keep the rationale in your /204-2 Substantiation folder.
Angel vs. fund outcomes
Angel activity can evidence domain judgment, but it is not fund performance. Present angels in a separate section with its own label and disclaimers; avoid composite charts that mix angel and fund metrics. If an angel deal later entered the fund via SPV, explain the timeline and any conflicts controls.
Net vs. gross at deal level
When you quote MOIC/IRR, specify Gross (pre-fees/carry) or Net to fund/LPs, and how net was derived (actual vs. pro forma with stated fee/carry assumptions). Align the period and methodology with what appears in your fund-level performance. If you present extracted (single-deal) results, point to the total portfolio’s gross and net in the same pack and explain why the extract is informative.
Format that passes exams
Use a one-page template per deal: Company; Entry date/stage; Check + ownership; Thesis wedge; Underwriting tests; Dated interventions; Outcomes (KPIs with dates); Counterfactual; Data sources; Net/Gross label. Include one base and one loss case alongside a win. This reads as judgment, not gloss, and gives exam staff (and LP ICs) the context and evidence they expect.
Books & Records (Rule 204-2): build an exam-ready archive
Advisers must make and keep true, accurate, current books and records and generally retain them for five years (the first two years in the principal office). Treat this as your marketing “black box”: if an examiner asks, you can surface the exact spreadsheet, memo, or approval that proves each claim within hours.
What to keep:
- Performance workpapers. Source data (by deal/fund), versioned spreadsheets with visible formulas, fee/carry and expense assumptions, and any pro-forma steps that convert gross to net. Export a PDF snapshot with timestamps each time numbers change.
- Composite / carve-out methodology. A short memo defining inclusion/exclusion criteria, time- or money-weighting, and how net was computed for composites and extracts; link to the affected marketing pages.
- Hypothetical performance files. Models (targets, back-tests), key assumptions and criteria, distribution policy (who can receive), and audience controls (e.g., not posted to website).
- Benchmark selection memos. One pager per index: rationale, material differences (sector, leverage, liquidity, currency), data source, and look-through limitations.
- Testimonials / ratings files. Original quotes/screenshots, consents/agreements, any compensation or non-cash benefit, conflict analysis, and the final formatted snippet used in materials.
- Marketing approvals. A workflow log for deck/teaser/site/email: preparer, reviewer (compliance/partner), date, and redline summary of what changed.
- Distribution lists. Who received which version and when (useful if you must issue a corrective communication).
Red Flags
Gross without net (equal prominence). If a slide shows a bold gross IRR/MOIC and net appears in a footnote, smaller font, or separate appendix, that’s a fail. Fix: put gross and net side-by-side for the same periods, same methodology, same font size. Add a deck-level rule: “No gross figure may appear unless the adjacent cell displays net.”
Hypothetical performance without controls. Targets, models, and back-tests shown without clear labels, assumptions, and audience limits are high risk. Fix: watermark such slides “Hypothetical,” list key assumptions (fees, leverage, vintage/market regime), and document the distribution rule (e.g., “LP prospects only; not on website”). Keep the spreadsheet and change log in your substantiation folder.
Cherry-picked winners without context. Two or three standout deals portrayed as typical results, without a base or loss example, reads as misleading. Fix: present a representative set (win/base/loss) or state plainly that the examples are not representative. Include selection criteria (e.g., “top 5 realized MOIC as of Q2 2025”) and add dispersion stats or cohort outcomes.
Testimonials/ratings missing disclosures. Quotes or badges used without stating who gave them, client/investor status, compensation, and material conflicts draw scrutiny. Fix: attach a small disclosure box beneath each quote/badge and keep a testimonial packet (original text, consent, compensation terms, conflicts analysis) in your files.
No substantiation on request. Examiners often ask for the workpapers behind a claim (formulas, raw data, benchmark rationale). Fix: maintain a /204-2 folder tree with performance workbooks; Benchmark Selection memos; hypothetical‐performance models; testimonial/ratings packets; versioned approvals and distribution lists.
Run a quarterly Red-Flag Scrub across deck, website, one-pagers, emails, and data room:
- Checklist items: gross/net parity, hypothetical labels, case-study representativeness, testimonial disclosures, link-back to workpapers.
- Ownership: assign a partner + compliance owner; set a 10-day SLA to remediate gaps.
- Version control: freeze PDFs, log distributions, and archive superseded materials.
Practical Compliance Playbook
Here’s a seven-piece toolkit that emerging managers can implement in a week. Each item has a home in your ILPA-mapped room:
Performance Compliance Memo
In 4-6 pages, document: how you calculate gross and net, fee/carry assumptions, composite/carve-out rules, how you treat hypothetical performance, and your QA process before any number goes public. Tie footnotes in the deck to sections of this memo.
Benchmark Selection Memo
One pager per benchmark: why it’s appropriate; material differences; any known limitations; links to data sources. Keep it current.
Marketing Review SOP
A flowchart: draft → compliance review → partner sign-off → versioned PDF to /204-2 Marketing/ → distribution list logged. Include a gross/net prominence check and a testimonial/ratings disclosure check.
Testimonial & Rating Packets
For each quote/rating: original text, signed permission, compensation terms, context (client/investor? conflicts?), and the final formatted version. Map each to the slide where it appears.
Case Study Methodology Note
Spell out selection rules (e.g., show win/base/loss), standard headings (thesis, intervention, outcome), and whether figures are gross or net. Store workbooks and IC memos that support the narrative.
Hypothetical Performance Controls
Policy that limits when/where you can use targets/back-tests, the assumptions you must show, and the intended audience. Include example disclosures you paste into slides.
EU Parallels (MiFID II / ESMA) for cross-border managers
If you’re a U.S. GP marketing an AIF into the EU (passport or NPPR), assume regulators will judge your materials against MiFID II/ESMA principles: communications must be fair, clear and not misleading, especially on performance and sustainability. ESMA’s 2024 pan-EU review (CSA + mystery-shopping) found firms broadly process-compliant but flagged exaggerated statements, unclear comparators, and weak evidence behind ESG claims. The EU is less prescriptive than the SEC on gross/net formatting, but examiners still expect documented basis for comparisons, balanced risk wording, and governance trails (who approved what, when).
Make your EU pack pass the sniff test
Performance & comparisons. If you reference an index or peer set, state why it’s appropriate, the time period, currency/hedging, and material differences (leverage, sector mix). Present downsides (volatility, drawdowns) alongside upside metrics.
Sustainability/ESG. Tie any ESG or impact claim to evidence (data source, methodology, scope). If your fund references SFDR (Article 6/8/9) or PAIs, align wording with your disclosures and avoid “stretch” statements.
Risk and prominence. Put key risks (liquidity, valuation, concentration, leverage, currency) near the related claim, don’t bury them. Use legible fonts and equal prominence for caveats attached to charts/graphics.
AIFMD Article 23 alignment. Ensure your marketing deck doesn’t contradict mandatory AIFMD investor disclosures (strategy, fees/expenses, valuation, liquidity, leverage limits, side-letter treatment). Keep an Article 23 cross-walk in your files.
Local rules & language. NPPR means country-by-country nuances (notifications, legends, language, retail access bans). Maintain an NCA matrix (what was filed, when, who approved, required legends).
Personal data & testimonials. If you name founders/LPs, meet GDPR basics (consent/use rights) and disclose material relationships; avoid implying typical outcomes.
Retail touchpoints. If you ever touch retail (e.g., ELTIF), expect KID/PRIIPs and enhanced appropriateness/suitability and cost disclosures, build these with your admin/distributor.
If you’re dual-marketing (US + EU), set a single high bar
- Use your U.S. Marketing Rule package (gross/net parity, hypothetical labeling, testimonial/ratings disclosures, workpaper substantiation) as the default.
- Add a 2-page MiFID II alignment note to your Marketing SOP covering: the “fair/clear/not misleading” test; how you evidence comparators; ESG claim substantiation; country-specific NPPR/legend requirements; and who signs off (Compliance/Legal) before distribution.
- Keep an EU approvals binder (NCA notices, translations, legends) and a version log so you can prove exactly which deck went to which Member State, when, and under which regime.
Do this once, and your EU materials read as professional, consistent, and exam-ready, without maintaining a second, divergent marketing stack.
How to Fundraise Your First Fund in 2025
Defining Your Investment Thesis
LP Targeting: Family Offices to Fund-of-Funds
Building Your Sourcing Edge
Running Your Fundraising Process
Fund Structure: 506(b), AIFMD & ELTIF
First Close: Funnel & Metrics
US Marketing Rules & SEC Compliance
The Final Close Checklist
EU Fundraising Routes
LP Reporting & Communication
Building Your LP Data Room & DDQ
Secondaries & Continuation Funds