- Portfolio management
- Conflicts of interest
- Safety of client assets; and
The purpose of this Compliance Alert is short and simple – to inform you that the SEC is keeping true to its word.
Based on the SEC’s activities so far this year, it is clear that they are conducting examinations of advisers who have not been examined within the past 3 years. We have been informed by numerous clients that the SEC has contacted them – either to conduct an on-site exam or to conduct a presence exam.
The alert describes current industry trends and practices in advisers’ due diligence. Compared to observations from prior periods, the staff noted that advisers are:
- Seeking more information and data directly from the managers of alternative investments
- Using third parties to supplement and validate information provided by managers of alternative investments
- Performing additional quantitative analysis and risk assessment of alternative investments and their managers.
Additionally, staff observed certain deficiencies in several of the advisory firms examined, including:
- Omitting alternative investment due diligence policies and procedures from their annual reviews, even though these investments comprised a large portion of certain advisers’ investments on behalf of clients
- Providing potentially misleading information in marketing materials about the scope and depth of due diligence conducted
- Having due diligence practices that differed from those described in the advisers’ disclosures to clients.
A copy of the Risk Alert can be found here.