On March 19, 2025, the staff of the U.S. Securities and Exchange Commission (the SEC Staff) updated its Marketing Compliance Frequently Asked Questions with respect to the Advisers Act Marketing Rule[1] (the Marketing Rule) to issue new interpretive guidance (the FAQ) significantly easing requirements with respect to the presentation of gross and net investment performance.~~In particular, the SEC Staff indicated that (i) it is no longer necessary to show net performance on an investment-by-investment basis , and (ii) certain other “portfolio characteristics” do not need to be presented on both a gross and net basis; in each case so long as certain parameters are met.~~(i) Net Performance Need not be Shown at the Investment Level (with Certain Caveats) :~~Following the adoption of the Marketing Rule and a subsequent FAQ in which the SEC Staff indicated that net performance is required to be presented for individual investments or groups of investments extracted from a single portfolio (collectively, Extracted Performance) where gross performance is shown, sponsors have struggled to comply with this requirement, frustrated by the fact that fees and expenses are primarily charged at the fund (not investment) level. The SEC Staff’s new guidance reverses this position, permitting sponsors to present performance information the way that many did prior to the Marketing Rule’s adoption, with Extracted Performance displayed only on a gross basis, provided it is displayed alongside fund-level gross and net returns. The following parameters must be met when displaying Extracted Performance on a gross but not net basis:~~We note that the requirement to show net performance with equal prominence to gross performance still applies to the performance of groups of investments extracted from multiple portfolios that is considered “hypothetical performance” (i.e., any performance results that were not actually achieved), as well as targeted and projected returns.~~The FAQ raises the question of how sponsors should handle individual investment performance in case studies designed to spotlight certain investments on one page of a pitchbook or quarterly report, or investment-level performance of pre-fund investments (which may have been structured as single asset vehicles), which sponsors may wish to aggregate with other pre-fund investments to show how such investments would have performed had they been part of a hypothetical fund/investment program.~~While a more conservative reading of the Marketing Rule and the FAQ would suggest that fund-level gross and net performance should be included on the same page as any case study showcasing an investment’s individual gross performance, footnote 6 of the FAQ helpfully clarifies: “In the staff’s view, the gross and net performance of the total portfolio does not need to be presented on the same page of the advertisement as the extracted performance, provided that the presentation facilitates comparison between the gross and net performance of the total portfolio and the extracted performance. For example, in the staff’s view, presenting the gross and net performance of the total portfolio prior to the extracted performance in the advertisement could also facilitate such comparisons and help ensure they are presented with at least equal prominence to the performance of the extract.” This guidance gives sponsors  actionable steps with which they can comply, and suggests that organizing a private placement memorandum or pitchbook with the full track record first, followed by individual case studies, will likely be acceptable under the current guidance. However, sponsors must continue to be mindful of the Marketing Rule’s general “fair and balanced” requirement whenever individual investment returns are presented.~~As it relates to investments made prior to the commencement of an actual fund, if a sponsor shows any such investments in a series, the Marketing Rule generally requires that they show all related investments (in other words, no highlighting only home runs), and in the absence of a fund to show “fund-level” performance, our view is that it likely remains necessary to show investment-level net performance (including applicable fees, which should be footnoted to highlight that they may not be comparable to those charged by the fund).~~If a sponsor seeks to aggregate performance from pre-fund investments into a hypothetical fund, such performance should be clearly labeled as hypothetical and counsel should be consulted to draft appropriate disclosure regarding all calculations and assumptions made, discuss the presentation of investment-level and “fund”-level returns, and to confirm that all relevant performance has been included.~~(ii) “Portfolio Characteristics” Need not Show Net Performance (with Certain Caveats) :~~In addition, the SEC Staff stated in an FAQ titled “Portfolio or Investment Characteristics” that certain presentations of gross “portfolio characteristics” (e.g., yield, coupon rate, contribution to return, volatility, sector or geographic returns, attribution analyses, the Sharpe ratio, the Sortino ratio, and other similar metrics)[2] do not need to be accompanied by a net equivalent, so long as:~~Sponsors utilizing such metrics should consult with counsel to determine appropriate footnotes but no longer need to attempt (sometimes impossible) calculations in an effort to generate a “net performance” number associated with them.~~We note that the recent FAQ did not withdraw the SEC Staff’s previous February 6, 2024 FAQ guidance on showing net unlevered performance, described in our prior client alert on the subject. In that FAQ, the SEC Staff advised, among other things, that private fund sponsors that wish to exclude the impact of subscription credit facilities when showing a gross internal rate of return in their performance track records must also exclude such impact when showing the corresponding net internal rate of return.~~[1] Rule 206(4)-1 under the Investment Advisers Act of 1940, as amended.~~[2] The SEC Staff clarified in FN 8 of the FAQ that this list does not include “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), regardless of how such metrics are labelled in the advertisement.”~~The following Gibson Dunn lawyers prepared this update: Kevin Bettsteller, Greg Merz, and Shannon Errico.~~Gibson Dunn’s lawyers are available to assist with any questions you may have regarding the issues and considerations discussed above. Please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Investment Funds practice group, or the authors:~~Investment Funds Contacts: Kevin Bettsteller – Century City (+1 310.552.8566, kbettsteller@gibsondunn.com) Albert S. Cho – Hong Kong (+852 2214 3811, acho@gibsondunn.com) Candice S. Choh – Los Angeles (+1 310.552.8658, cchoh@gibsondunn.com) Shannon Errico – New York (+1 212.351.2448, serrico@gibsondunn.com) John Fadely – Singapore (+65 6507 3688, jfadely@gibsondunn.com) A.J. Frey – Washington, D.C./New York (+1 202.887.3793, afrey@gibsondunn.com) Shukie Grossman – New York (+1 212.351.2369, sgrossman@gibsondunn.com) James M. Hays – Houston (+1 346.718.6642, jhays@gibsondunn.com) Kira Idoko – New York (+1 212.351.3951, kidoko@gibsondunn.com) Gregory Merz – Washington, D.C. (+1 202.887.3637, gmerz@gibsondunn.com) Eve Mrozek – New York (+1 212.351.4053, emrozek@gibsondunn.com) Roger D. Singer – New York (+1 212.351.3888, rsinger@gibsondunn.com) Edward D. Sopher – New York (+1 212.351.3918, esopher@gibsondunn.com) C. William Thomas, Jr. – Washington, D.C. (+1 202.887.3735, wthomas@gibsondunn.com) Kate Timmerman – New York (+1 212.351.2628, ktimmerman@gibsondunn.com)~~© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.gibsondunn.com.~~Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. 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