Fund Disclosures Addressing COVID-19 Risks
We have now been in the throes of the COVID-19 global pandemic for several months. On March 11, 2020, the World Health Organization officially declared a pandemic. What was only months ago a distant (and possibly deliberately concealed) abstraction is now a semi-permanent and world-altering reality. Depending upon the target investors of a private investment fund, it will now in almost every case also be a ‘material fact’ and a ‘material risk’ that must be addressed in a private fund’s offering documents, principally as a risk factor.
As citizens adjust to safety measures such as ‘sheltering-in-place’, securities market regulators around the world, including the U.S. Securities and Exchange Commission (“SEC”), have responded with various announcements and rules, attempting to balance flexibility with the role of regulator policing markets. In the United States, the COVID-19 pandemic struck on the heels of voluminous SEC final and proposed rule releases. These are covered in some of our other memoranda.
In the field of private investment funds such as private equity funds and hedge funds, when drafting offering documents, supplements or periodic reports, practitioners routinely review relevant precedents from investment companies registered under the Investment Company Act of 1940, as well as recent precedents from other private investment funds.
Below is a sampling of potentially useful COVID-19 risk factors appearing in Supplements that were filed with the SEC during the last two months. Any disclosure or offering document must take into account the unique facts and circumstances of the fund for which the drafter is preparing a document. As with any other precedent, the drafter must not rely solely on precedents and should consult knowledgeable counsel.
 Coronavirus Declared Pandemic by World Health Organization, Betsy McKay, Jennifer Calfas and Talal Ansari The Wall Street Journal, March 11, 2020 (https://www.wsj.com/articles/u-s-coronavirus-cases-top-1-000-11583917794).
 Although private funds that are offered only to accredited investors pursuant to Rule 506(b) of Regulation D are not directly required to furnish any specific information to accredited investors, antifraud rules, civil liability, and industry custom require the preparation of an Offering Memorandum containing disclosures guided in the first instance by the information that would be required to be given to any non-accredited investors. As to ‘non-financial’ information, Rule 502(b)(2) directs the issuer to provide non-accredited investors the same information as would be required by Part I of the Securities Act registration statement form that the issuer would be entitled to use. Rule 502(b)(2)(A), 17 CFR 230.502.