An overview of carve-out performance under the SEC Marketing Rule and key considerations for private fund advisers using performance data in fundraising and investor comm
As private fund managers continue to expand fundraising and investor relations efforts, performance reporting remains an area of heightened regulatory focus. While advisers often seek to highlight specific investment strategies, sectors, or subsets of portfolio holdings, the SEC's Marketing Rule imposes important limitations on the presentation of so-called "carve-out" or "extracted" performance. For private fund advisers, understanding these requirements is essential when preparing pitch books, investor presentations, websites, due diligence questionnaires, and other marketing materials.
Generally, carve-out performance refers to the performance of a subset of investments extracted from a larger portfolio. Examples may include:
While such information may provide useful context regarding a manager's experience, regulators have expressed concern that extracted performance may present an incomplete picture if viewed in isolation.
The SEC's Marketing Rule specifically addresses extracted performance and generally permits its presentation only if the adviser also provides, or offers to provide promptly, the performance of the total portfolio from which the results were extracted. The rule reflects the SEC's broader principle that performance information should be presented in a manner that is fair and balanced and not likely to create misleading implications regarding a manager's overall results.
Private fund managers frequently maintain portfolios containing multiple investment themes, sectors, geographies, or transaction types. As a result, there can be a natural desire to highlight certain investments that demonstrate expertise within a particular strategy.
However, advisers should carefully evaluate whether the presentation provides sufficient context regarding:
These considerations become particularly important during fundraising activities and investor due diligence processes.
As with many aspects of the Marketing Rule, documentation remains critical.
Advisers should be prepared to support the methodology used to generate performance information and maintain records demonstrating how performance figures were calculated and presented. The SEC has repeatedly emphasized the importance of substantiation and recordkeeping when performance claims are used in marketing materials.
Performance presentations remain one of the most scrutinized areas of adviser marketing. While carve-out performance may provide meaningful insight into a manager's experience, firms should ensure that such information is presented with appropriate context and supported by a well-documented methodology.
As regulatory expectations continue to evolve, advisers should periodically review marketing materials, investor presentations, and fundraising documents to confirm alignment with current Marketing Rule requirements.
📌 2026 Consideration: Performance information should be evaluated not only for accuracy, but also for whether it can be substantiated, documented, and supported under examination. Where carve-out performance is utilized, advisers should ensure that appropriate context and supporting information are available to investors and regulators alike.
RegComp Financial continues to assist investment advisers and private fund managers in evaluating marketing practices, disclosure obligations, and compliance frameworks under the Marketing Rule.
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