SEC presence Examination Initiative
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
eliminated various client exemptions which investment advisers could use to avoid registration under the Investment Advisers Act of 1940.
• The SEC staff has been carrying out “Presence Exams” of these newly
registered advisers.
• Every registered investment adviser is subject to examination by the SEC
through the Office of Compliance Inspections and Examinations (OCIE) and its National Exam Program.
• As part of these on-site examinations, the SEC staff requests and reviews the books and records of the adviser, interviews various personnel, and attempts to determine if the adviser is complying with the numerous rules and regulations of the Investment Advisers Act.
As of May 2014, the OCIE had initiated examinations of over 150 newly
registered private equity advisers, and had found certain “concerning trends” regarding private equity expenses.
• The OCIE identified violations of law or material weaknesses in controls with respect to the fees and expenses of at least half of the investment advisers it reviewed.
• Some of the most common deficiencies occur in the investment advisers’ use of consultants, also known as “Operating Partners.” Many of these Operating Partners are paid directly by portfolio companies or the funds without sufficient disclosure to investors. Further, Operating Partners are not usually treated as employees or affiliates of the manager and, therefore, their fees rarely offset management fees.
• The OCIE also noted that there appears to be a trend of advisers shifting
expenses from themselves to their clients during the middle of a fund’s life
without disclosure to limited partners.
Consult Us
I'm a paragraph. Click here to add your own text and edit me. It’s easy. Just click “Edit Text” or double click me to add your own content and make changes to the font.