SEC Staff Issues Updated Marketing Rule FAQs

SEC Staff published new guidance providing private fund managers and other investment advisers with flexibility to use extracted performance and portfolio/investment characteristics in marketing materials, without cumbersome accompanying “net” illustrations.

On March 19, 2025, the Staff of the Division of Investment Management (Staff) of the US Securities and Exchange Commission (SEC) published new guidance in the form of Frequently Asked Questions (FAQs) relating to Rule 206(4)-1 under the Investment Advisers Act of 1940, as amended (the Marketing Rule), clarifying the requirement to show both gross and net performance in two specific contexts: performance of one investment or a group of investments (an “extract”) and the use of portfolio and investment characteristics. [1]

This update allows advisers to use gross-only extracted performance as well as certain investment characteristics (such as yield or Sharpe ratio) without having to calculate side-by-side net performance illustrations, provided a comprehensive, Rule 206(4)-1-compliant overview of the entire portfolio, including both gross and net performance, is shown early on in the applicable marketing materials or advertisement.

Previous FAQs, which were released by the Staff on January 11, 2023 while the SEC was under different leadership, provided that an adviser may not show gross performance of an extract without also showing the net performance of that same extract and making clear that an extract included the performance of a single investment (or subset of investments) within a portfolio. These most recent FAQs will replace the 2023 FAQs.

The 2025 FAQs clarify that advisers may display gross performance of an extract, without showing net performance of the extract, so long as the following conditions are met:

• The extracted performance is clearly identified as gross performance, which could be accomplished by stating that the extracted performance “does not reflect the deduction of all fees and expenses that a client or investor has paid or would have paid” and cross-referencing the total portfolio (gross and net) performance illustration.
• The extracted performance is accompanied by a presentation of the total portfolio’s gross and net performance consistent with the requirements of the Marketing Rule.
• The gross and net performance of the total portfolio is presented with at least equal prominence to, and in a manner designed to facilitate comparison with, the extracted performance, which would not have to be on the same page, but should precede the presentation of extracted performance.
• The gross and net performance of the total portfolio is calculated over a period that includes the entire period over which the extracted performance is calculated, which— notwithstanding the specific time periods required by paragraph (d)(2) of the Marketing Rule—could be a single, clearly disclosed period. [2]

The 2025 FAQs also recognize that advisers may be unsure whether certain characteristics are considered “performance” because this term is not defined in the Marketing Rule. Due to this uncertainty, some managers have engaged in the complex calculation and presentation requirements applicable to performance.

Although the Staff was careful to point out that the SEC was not taking any position on whether any particular characteristic would be considered “performance,” the guidance did state that the Staff believes there is little risk that prospective clients and investors will be misled about the impact of fees and expenses on their returns, where advisers disclose portfolio or investment characteristics, provided a clear presentation of both gross and net performance of the total portfolio is also included.

Without taking a position on whether they constitute “performance,” the Staff listed yield, coupon rate, contribution to return, volatility, sector returns, geographic returns, attribution analyses, Sharpe ratio, and Sortino ratio as examples of certain characteristics. The Staff also noted that the FAQ does not extend to total return, time-weighted return, return on investment (ROI), internal rate of return (IRR), multiple on invested capital (MOIC), or total value to paid in capital (TVPI), which—unsurprisingly—can be interpreted as a statement of the Staff’s view that such data are “performance.”

Similar to their position on displaying the performance of an extract, the Staff stated that it would not make a referral to the Division of Enforcement if advisers present gross-only characteristics of a portfolio or investment, without including the corresponding “net characteristics,” if the following are true:

• The gross characteristic is clearly identified as being calculated without the deduction of fees and expenses, which could be accomplished by stating that the characteristic shown “does not reflect the deduction of all fees and expenses that a client or investor has paid or would have paid” and cross-references the total portfolio (gross and net) performance illustration.
• The characteristic is accompanied by a presentation of the total portfolio’s gross and net performance consistent with the requirements of the Marketing Rule, where the “total portfolio” could be a composite aggregation of related portfolios (or a subset thereof), a representative account, [3] or extracted performance of a portfolio.
• The total portfolio’s gross and net performance is presented with at least equal prominence to, and in a manner designed to facilitate comparison with, the gross characteristic, which would not have to be on the same page but should precede the presentation of such characteristic(s).
• The gross and net performance of the total portfolio is calculated over a period that includes the entire period over which the characteristic is calculated, which— notwithstanding the specific time periods required by paragraph (d)(2) of the Marketing Rule—could be a single, clearly disclosed period. [4]

Finally, the Staff noted that any advertisement that presents the gross performance of one or more extracts or characteristics remains subject to the general prohibitions of Rule 206(4)-1(a) as well as Sections 206(1) and 206(2) of the Advisers Act. In other words, advisers should remain vigilant and ensure that they satisfy the other requirements of the Rule even if they include a gross and net presentation of total portfolio performance in the front.

The practical, useful nature of the 2025 FAQs is a breath of fresh air for advisers, who have struggled since the Marketing Rule’s November 2022 compliance date to determine whether certain datapoints that measure risk or illustrate particular attributes of an investment or a portfolio constitute “performance.” Advisers have equally struggled to develop methodologies for calculating “net” performance for extractions or such characteristic datapoints—which, in some cases have resulted in advisers foregoing the use of such illustration altogether (despite their potentially helpful nature to investors) or struggling to adopt a methodology to calculate model “net performance” on an investment-by-investment basis.

As a result of this renewed outlook from the Staff, marketing materials should be clearer, cleaner, and more meaningful for investors, and less costly and risky for advisers to produce.

Advisers seeking to take advantage of this new guidance should consider whether their existing Marketing Rule policies and procedures will need to be revised accordingly and whether they would like to amend existing marketing materials (for example, to reorder certain pages in the presentation to take advantage of the relief offered by the new FAQs).

Advisers may also want to implement checklists for compliance with the new FAQs that help facilitate marketing material review in the context of the new guidance, but also to help educate internal marketing and portfolio management teams on the changes.