How should private equity firms present case studies under the SEC Marketing Rule?

The short answer: it depends on whether the case study is an advertisement

Whether the SEC Marketing Rule governs a private equity case study depends on who sends it, to whom and why. For an SEC-registered investment adviser, a case study inside materials that offer a fund to prospective investors will often be part of an advertisement. When it is, the case study has to be fair and balanced, its material claims have to be ones the adviser can substantiate, and any performance it shows, including single-deal or projected figures, brings extra conditions. Compliance counsel decides which documents are in scope.

The rule is Rule 206(4)-1 under the Investment Advisers Act of 1940, codified at 17 CFR 275.206(4)-1. Read the rule text, the SEC's adopting release and the staff FAQs with your compliance team. This page summarizes the themes that matter for case studies and offers a structure for writing them; it does not replace that reading.

What the rule says, in plain terms

The rule sets general prohibitions that apply to every advertisement. In plain language, an advertisement may not:

• Include an untrue statement of material fact, or leave out a fact needed to stop a statement from misleading.
• Include a material statement of fact the adviser has no reasonable basis to believe it can substantiate if the SEC asks.
• Create an untrue or misleading implication about the adviser.
• Discuss potential benefits without fair and balanced treatment of material risks or limitations.
• Refer to specific investment advice in a way that is not fair and balanced.
• Include or exclude performance results, or choose time periods, in a way that is not fair and balanced.
• Otherwise be materially misleading.

Compliance teams generally treat a portfolio company case study as a reference to specific investment advice, which brings in the fair-and-balanced standard. Beyond the general prohibitions, the rule adds conditions for particular kinds of performance. Three come up constantly in case studies:

• Extracted performance, meaning results of a subset of a fund's investments, such as one deal's MOIC. The rule ties it to the results of the total portfolio it was drawn from.
• Hypothetical performance, meaning results not actually achieved, which can include projections and targets. It is permitted only under conditions, including policies tailored to the intended audience.
• Gross and net results, where gross figures are expected to appear with net figures.

Each has detailed conditions, so take the exact wording from the rule text rather than from a summary.

How the rule applies in common case-study situations

Pricing work is one of the initiatives that most often lands in these decks; the guide to pricing as a value creation lever shows what such a review produces and what it does not.

A fair case-study structure: situation, lever, evidence, result, what did not work

Writing each case study in these five parts, in this order, keeps it specific and balanced.

1. Situation. The company's position at entry in facts an LP can check: revenue band, margin, systems and the problem the plan targeted.
2. Lever. What the operating team and management actually did, who led it and when. Name the firm's role honestly; management usually carried most of the work.
3. Evidence. The documents behind each claim: board minutes, KPI history, signed agreements, invoices. If you could not produce it on request, cut the claim.
4. Result. Measured outcomes, with the period, the basis (reported, adjusted or run-rate) and the other drivers that contributed.
5. What did not work. The initiative that stalled, the cost that overran, the assumption that proved wrong. This part does more for credibility than any chart.

LPs ask for exactly this kind of evidence when they test an operating model, as the guide to how LPs evaluate operating partner models describes.

How to describe a data license before and after it closes

A data license passes through distinct stages, and the wording should match the stage. Nothing is binding until the company agrees price and terms and signs, so an exploratory process is not an asset to count.

Public filings show why contract value and revenue need separating. In its February 2024 IPO registration statement, Reddit disclosed data licensing arrangements entered in January 2024 with an aggregate contract value of $203.0 million over terms of two to three years, and said it expected to recognize at least $66.4 million of that in 2024. The same separation of total value, term and revenue in the period is the fair way to present any license in a case study. For how a one-time license interacts with earnings quality, see the controller's guide to booking a one-time license.

Disclosure and consent good practice

• Get the portfolio company's written approval before naming it or describing its initiative. Data licenses usually carry confidentiality terms, and the licensee is normally not named.
• Keep a substantiation file for each case study: source documents, the calculation and who signed off.
• Footnote one-time items as non-recurring and give the period they fell in.
• If anyone at the firm receives a referral reward connected to a portfolio company, check the LPA's fee and conflicts provisions and disclose it as counsel advises.
• Date every case study and review it before each new fundraising round.

Questions to ask your compliance counsel

1. Which of our fundraising decks, data room documents and DDQ answers count as advertisements under the rule?
2. Do our case-study selection criteria hold up if every comparable deal is set beside the ones we show?
3. Which figures in our case studies are extracted or hypothetical performance, and what has to accompany them?
4. How should a non-recurring item such as a data license appear in an EBITDA bridge?
5. Do any portfolio CEO quotes count as testimonials or endorsements, and what follows if they do?
6. What substantiation file do we need for each case study, and who maintains it?

DDQ responses raise many of the same questions; the guide to ILPA DDQ value creation questions covers that side.

This is general information, not legal, tax or financial advice. Confirm with your own counsel or compliance consultant before acting.

Next step

If your operating team screens portfolio companies for data licensing, describe that work in the stage language above and nothing stronger. When a company meets the who qualifies baseline, an operating partner can register as a partner and introduce the company; the operating partners page explains how the program works on the sponsor side.