Fund Compliance: A Comprehensive Guide and FAQ for Fund Managers

Introduction

Fund compliance is a critical aspect of managing a venture capital or private equity fund. Ensuring regulatory adherence across multiple jurisdictions, implementing robust Know Your Customer (KYC) and Anti-Money Laundering (AML) policies, and understanding general solicitation rules can be complex but necessary for fund managers.

This article provides an in-depth FAQ covering essential compliance areas, including KYC/AML requirements, regulatory filings, investor limitations, and conflict of interest concerns.

Frequently Asked Questions (FAQs)

1. KYC and AML Compliance

What are the KYC/AML requirements for funds?

KYC (Know Your Customer) and AML (Anti-Money Laundering) compliance require funds to:

  • Verify the identity of LPs, including full legal name, date of birth, and country of residence.

  • Screen investors against global sanctions and watchlists.

  • Conduct enhanced due diligence for high-risk investors or entities.

How do I clear AML checks for a US citizen with a common name that matches multiple watchlists?

  • Request additional details such as date of birth and run them through KYC verification tools like Parallel Markets.

  • Work with an administrator who can manually review discrepancies.

What KYC documentation can a portfolio company's corporate secretary request from a fund?

  • Basic compliance requirements usually include formation documents and beneficial ownership details.

  • Fund managers are not obligated to disclose full LP details.

  • Excessive requests (such as registers of shareholders, passport copies of LPs, or internal fund documents) can be politely declined unless legally required.

2. Regulatory Compliance and SEC Filings

When do fund managers need to file as an Exempt Reporting Advisor (ERA)?

  • In the US, fund managers must file Form ADV as an ERA within 60 days of a fund’s first closing.

  • Exemptions apply to venture capital funds and funds managing less than $150M.

When should Form ADV amendments be filed each year?

  • Fund managers must update Form ADV annually within 90 days of the fiscal year-end.

  • It is recommended to have legal counsel handle the filing.

What are the SEC investor limits for venture funds?

  • Funds rely on Investment Company Act exemptions:

    • 3(c)(1) Funds → Limited to 100 investors (or 250 investors if under $10M).

    • 3(c)(7) Funds → Can have unlimited "qualified purchasers" but require stricter compliance.

Does a fund manager need to register with the Ontario Securities Commission (OSC) before raising capital from Canadian investors?

  • Generally, venture and private equity funds are exempt from OSC registration if they make “active investments” (e.g., board seats, management involvement).

  • Registration is not required unless acting as an investment fund manager or portfolio manager.

3. General Solicitation & Investor Relations Compliance

What is general solicitation, and how can funds avoid violations?

General solicitation refers to publicly advertising a fund or its investment opportunity, which is strictly regulated. To remain compliant: ✅ DO NOT:

  • Publicly disclose details about the fund’s strategy, size, or terms.

  • Use social media or podcasts to promote the fund.

  • Solicit investments from unaccredited or unknown investors.

✅ YOU MAY:

  • Discuss industry insights or personal experiences as an investor.

  • Talk about market trends or investment philosophies without referencing your fund.

Can a fund manager mention their fund on a podcast or at an event?

🚫 No, unless the fund is fully closed and no longer raising capital. Even then, discussions about new funds must be avoided.

Can I list myself as "Managing Partner" on LinkedIn before the first close?

  • Yes, but avoid mentioning fundraising efforts.

  • No “Contact us” or investor outreach language should be included.

Can I promote my fund after launch?

  • No, funds cannot publicly solicit investors, even after launch.

  • However, funds can market themselves to entrepreneurs to attract deal flow.

Can I share my fund launch journey on LinkedIn?

  • You can mention participation in programs like VC Lab, but must not discuss fund specifics.

4. Fund Operations & Investor Compliance

Why can’t VC funds have more than 99 LPs?

  • To maintain SEC exemptions, 3(c)(1) funds must remain under 100 LPs.

  • 3(c)(7) funds (for qualified purchasers) allow more LPs but require higher compliance costs.

What are Level 1, 2, and 3 investments in a fund's valuation policy?

  • Level 1: Publicly traded securities with clear market prices.

  • Level 2: Assets with observable inputs (e.g., recent transactions).

  • Level 3: Illiquid, private investments (most VC fund holdings).

Can LPs change their capital commitment after closing?

  • LPs cannot reduce their commitment below the paid-in amount.

  • Changes require a formal amendment to the Limited Partner Agreement (LPA).

Does a capital call change an LP's total commitment?

  • No, a capital call only draws down a portion of an LP’s commitment.

  • Funds cannot deploy 100% of the capital from a first close before raising the rest.

5. Conflict of Interest and Ethics Compliance

Can a fund receive advisory shares from a portfolio company?

🚫 No, funds cannot accept advisory shares from portfolio companies, as it creates a conflict of interest. However, warrant coverage is permitted.

Can a fund manager personally invest in startups outside the fund?

  • This is generally discouraged, as LPs expect fund managers to prioritize their fund investments.

  • If investing personally, ensure no conflicts of interest arise (e.g., competing deals).

Can a fund manager be a Venture Partner in another fund?

  • Likely a conflict of interest.

  • Disclosure is required, and legal evaluation should be conducted.

Can LPs be directly introduced to deals outside the fund?

  • Only if all LPs are given equal access and the fund does not participate.

  • Best practice: Set up an LP Advisory Committee (LPAC) to approve such introductions.

How does the Committee on Foreign Investment in the United States (CFIUS) impact foreign-backed funds?

  • CFIUS reviews foreign ownership in sensitive technology and infrastructure.

  • Funds with majority foreign LP funding may face restrictions on investing in critical industries.

Conclusion

Fund compliance is an ongoing strategic and regulatory challenge that requires careful attention to KYC/AML requirements, investor relations policies, and conflict of interest rules.

Key Takeaways:

✅ Strictly follow KYC/AML regulations to ensure investor integrity.
✅ File necessary SEC/OSC registrations and comply with exempt reporting requirements.
✅ Avoid general solicitation risks—fundraising must be private and restricted to accredited investors.
✅ Ensure ethical fund management—disclose conflicts of interest and maintain LP trust.

For funds operating across jurisdictions, it’s crucial to work with experienced legal counsel to navigate evolving compliance landscapes effectively.

Fund Compliance, VC RegulationFrancesca Tabor