SEC Division of Investment Management Staff Revises Guidance on Certain Gross and Net Performance-Related Presentations

On March 19, 2025, the staff of the SEC’s Division of Investment Management (the “Staff”) updated its Marketing Compliance Frequently Asked Questions (“FAQs”) to address the inclusion by SEC-registered investment advisers of certain performance data, on a gross basis, in the context of Rule 206(4)-1 of the Investment Advisers Act of 1940 (the “Marketing Rule”).

The two (2) new FAQs permit the presentation in advertisements of gross extracted performance data (e.g., case studies, a single investment) and of certain gross performance-related investment characteristics without the need for investment advisers to include corresponding net performance information subject to compliance with the Staff’s enumerated conditions. The full list of FAQs is available here.

New FAQs

Extracted Performance. In its first new FAQ, the Staff departed from prior guidance issued by the Staff in 2023, by confirming that it would not recommend enforcement action to the SEC under the Marketing Rule if an investment adviser displays the gross performance of a subset of investments (the “extracted performance” or “extracts”) without including the corresponding net performance data for such extracts if:

1. the extracted performance is clearly identified as gross performance;
2. 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;
3. 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, with the Staff confirming that the total portfolio information need not be included on the same slide as the gross extracted performance; and
4. 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.

Portfolio or Investment Characteristics. In the second new FAQ, the Staff acknowledged that investment advisers often face uncertainty in determining whether to treat as “performance” under the Marketing Rule certain performance-related portfolio or investment characteristics such as yield, coupon rate, contribution to return, volatility, sector or geographic returns, attribution analyses, the Sharpe ratio, the Sortino ratio, and other similar metrics (“characteristics”).

Without taking a formal position, the Staff issued guidance similar to that contained in the extracted performance FAQ discussed above. Specifically, the Staff confirmed it would not recommend enforcement action to the SEC under the Marketing Rule if an investment adviser chooses to present in an advertisement one or more characteristics on a gross basis without including the characteristic(s) on a net basis, if:

1. the gross characteristic is clearly identified as being calculated without the deduction of fees and expenses;
2. the gross characteristic is accompanied by a presentation of the total portfolio’s gross and net performance consistent with the requirements of the Marketing Rule;
3. 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 gross characteristic, with the Staff confirming that the total portfolio information need not be included on the same slide as the gross characteristic; and
4. 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.

Takeaways

• In providing a more flexible approach, the updated FAQs will likely provide welcome relief for investment advisers, many of whom struggled to determine an appropriate methodology to calculate net performance results for extracts and characteristics.
• The first FAQ is a reversal of the extracted performance FAQ issued by the Staff under Gary Gensler, in January 2023, in which the Staff indicated that any “extracted performance” under the Marketing Rule that is presented on a gross basis must be accompanied by the same information on a net basis, creating calculation challenges for investment advisers, confusion for investors, and inconsistent practices across marketing materials.
• Investment advisers who choose to avail themselves of the updated guidance should review their marketing materials and compliance policies to incorporate the relevant updates.