The SEC’s push to conduct narrowly focused examinations of newly registered investment advisers is ahead of schedule and providing it with insights about compliance weaknesses, hedge fund advisers, and private equity companies.
To date, the SEC has completed 210 presence exams while 42 are currently open. Exam teams are focused on compliance associated with marketing practices, portfolio management, conflicts of interest, safety of client assets, and valuation.
Data from presence exams conducted to date reveals the most commonly cited deficiency for hedge fund managers involves marketing practices, including, but not limited to, misleading statements or weak disclosures contained in marketing and advertising materials, such as misleading performance statistics and data on past recommendations. The exams also showed hedge fund adviser deficiencies involved internal compliance, control procedures and inadequate maintenance of books and records as well as conflicts of interest, including offering co-investment opportunities to some favored clients but not to others and a failure to make certain disclosures.
Enforcement actions will likely follow.