SEC Staff Confirms: “Net” Performance Required to Be Shown for Case Studies in Investment Adviser Marketing Materials

January 23, 2023 | Insights



By W. Graham McCall

Even as the November 4, 2022, deadline has come and gone for registered investment advisers to comply with the SEC’s new Marketing Rule, private fund sponsors have continued to grapple with implementing one of the rule’s more consequential requirements. As a general matter, the new rule prohibits any presentation of gross performance in an advertisement unless the advertisement also presents net performance (i) with at least equal prominence to, and in a format designed to facilitate comparison with, the gross performance, and (ii) calculated over the same time period and using the same type of return and methodology as, the gross performance. Under the rule, “net performance” means performance results after the deduction of all fees and expenses that a client or investor has paid or would have paid.

While relatively straight-forward to calculate net performance in the context of an entire investment fund portfolio, how should a manager be expected to do the same for a single investment or group of investments extracted for illustrative purposes? For example, what if a case study is extracted from a private equity portfolio that is subject to multiple fee classes, multiple closings, cash reserves, several unrealized investments, a deal-by-deal waterfall and potential for clawback? Layer in the Marketing Rule’s overarching requirement that all advertisements be “fair and balanced,” and many managers were left taking the position that case studies could show gross performance so long as the net performance of the overall portfolio was shown as well.

On January 11, 2023, SEC staff dispelled this position when it answered “yes” to the following question in an update to its Marketing Rule FAQs:

Q: When an advisor displays the gross performance of one investment (e.g., case study) or a group of investments from a private fund, must the advisor show the net performance of the single investment and the group of investments?

Staff reasoned that, when read together, the gross/net and extracted performance provisions of the Marketing Rule require that “an adviser may not show gross performance of one investment or a group of investments without also showing the net performance of that single investment or group of investments, respectively.”

While the foregoing staff position is not binding on the SEC itself, the SEC Examinations division has singled out the gross/net performance requirement of the Marketing Rule as a specific area of focus for its next round of routine examinations. Accordingly, registered investment advisers would be wise to revisit their marketing materials and ensure any case studies highlighting gross performance results feature net performance results as well. Given the complexity of calculating the net performance of a case study in a “fair and balanced” manner, advisers should make every effort to “evaluate the particular facts and circumstances that may be relevant to investors, including the assumptions, factors, and conditions that contributed to the performance, and include appropriate disclosures or other information” so that the performance results are not misleading.


The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice. For more information regarding new requirements for investment advisers under the marketing rule, please contact W. Graham McCall or a member of the Corporate & Securities practice.


Meet Graham

W. Graham McCall is a partner in the Corporate & Securities section of Jackson Walker’s Dallas office. His practice focuses on advising private investment fund sponsors, including registered investment advisers and CPO/CTAs, regarding the formation, offering and ongoing operations of a wide variety of open and closed-ended funds spanning multiple strategies and asset classes, including hedge, private equity, credit, real estate, energy, digital asset, venture capital and fund-of-funds. He also has experience representing family offices, sovereign wealth funds and public and private pensions performing diligence and negotiating terms for investments in comingled and co-investment vehicles. Graham’s transactional funds practice is complimented by his deep regulatory experience helping clients navigate complex issues arising under SEC, CFTC and NFA rules and regulations.

Meet JW

Since Jackson Walker’s founding in 1887, our attorneys have represented some of the most influential companies and business leaders in the world. Today, we remain firmly rooted in Texas while serving clients around the globe. With more than 450 attorneys across seven offices, we are the largest firm in Texas and have been recognized by Law360 as a “Texas Powerhouse” and an “elite law firm” that regularly provides counsel to industry-leading clients on highly complex transactions ranging from millions to billions. To explore the Firm’s experience in investment funds and related practices, visit the Corporate & Securities practice page.


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Graham McCall
Partner, Dallas

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