The SEC on March 2, 2011 proposed new restrictions on incentive-based compensation at large investment advisers, including private equity and hedge fund managers.

The proposed rule is similar to those proposed by other federal regulators having jurisdiction over “covered financial institutions,” as required under the Dodd-Frank Act.

The proposal would only apply to investment advisers (both registered and unregistered) with more than $1 billion in assets as reflected on the adviser’s balance sheet. The SEC has stated informally that this test is not meant to include assets of a fund that might be required to be consolidated with the adviser’s assets pursuant to U.S. GAAP rules. As a result, the rule is not likely to be relevant to most private equity and hedge fund managers.