This year we saw a flurry of regulatory activity targeting investment advisers and hedge funds, private equity funds and other private funds (collectively, private funds). The following annual review is a summary of some of the significant changes and developments that occurred in the past year and certain recommended practices that investment advisers to private funds should consider when preparing for 2015.
In 2014, we saw a notable increase in the number of examinations of registered investment advisers by the Office of Compliance Inspections and Examinations (OCIE) of the U.S. Securities and Exchange Commission (SEC). In particular, we noted numerous examinations of newly-registered investment advisers and first time examinations of investment advisers that have not previously been examined, in both cases consistent with OCIE’s publicly-announced priorities. We expect to see both initiatives continue well into 2015, whether or not formally announced as such by the SEC.
Investment advisers have reported a wide range of experiences in recent examinations. OCIE still generally seems to give about one week’s advance notice of an examination. The duration of examinations, however, has lasted anywhere from three days to several months in time. In some cases, exams have been conducted entirely off-site through exchanges of documents through the SEC’s secure email system. Recently, OCIE staff has not been identifying examinations as “presence” exams, but examinations have tended towards the shorter end of the spectrum. Similarly, we have noted a significant range in the scope and depth of reviews. For example, the SEC’s review of emails has ranged from no review to reviewing emails of multiple personnel, and has covered periods ranging from one month to more than one year in time. We have even seen “phone exams” as part of the SEC’s outreach program for newly registered investment advisers, where the SEC spends an hour or so on the phone with the chief compliance officer asking questions about Form ADV and the registrant’s business.
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