Enforcement Division Announces Private Equity Firm Initiative
The Co-Chief of the SEC’s Asset Management Enforcement Unit, recently, informed the public that the Staff will be paying particular attention to private equity firms.
The SEC Staff will be using the information it compiled from its risk assessment review of private equity firms in this endeavor. These reviews will take note of valuations as well as other items including fees charged, broker dealer fees and tax and audit fees allocated to funds and investors. No doubt much of the Asset Management Unit's focus will be a review of investment advisers/managers as well as fund structures.
Nonetheless, the unit will, specifically, use the Aberrational Performance Initiative, the study that flagged hedge fund performance that appeared inconsistent with a fund's strategy or benchmarks. The SEC Staff believes that this initiative will allow it to detect fraud earlier or prevent it, as the case may be. The SEC Staff also warned that investment advisers with less than $25,000,000 in assets under management still must have strong compliance programs. Essentially, the SEC Staff is suggesting no one is exempt.
In sum, we should expect to see more private equity funds on the SEC Staff's radar in the future.