SEC Risk Alert Gives Advice to Private Fund Advisors
The SEC published a Risk Alert on June 23, 2020 which outlined compliance issues discovered during hundreds of examinations of investment advisers that manage private equity funds or hedge funds.
This Risk Alert is a must-read for private fund advisers, which comprise 36 percent of SEC-registered investment advisers.
Three areas of advice to private fund advisers were covered in the Risk Alert:
- Conflicts of interest
- Fees and expenses
- Material non-public information (MNPI) policies and procedures.
Examiners noted that deficiencies in these areas caused investors to incur higher costs without receiving full disclosure of the adviser's conflicts of interest.
Key Takeaways
According to the Risk Alert, several examinations resulted in deficiency letters and referrals to the SEC's Division of Enforcement. While some examined firms were not cited for compliance deficiencies, private fund advisers should be prepared for a visit from examiners.
Risk Alerts published by the SEC's Office of Compliance Inspections and Examinations (OCIE) are provided to inform advisers to be careful to avoid cited deficiencies.
As such, advisers that manage private funds should take note of this particular Risk Alert and should bolster their policies and procedures in the problem areas identified by examiners.
Private fund advisers should also make certain that advisory personnel are strictly adhering to those policies and procedures using reliable methods such as compliance software.
The SEC Risk Alert can be found at the following link. A more complete review of this issue can be found at SmartRIA.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.