The OCIE, Office of Compliance Inspections and Examinations, released a Risk Alert concerning examinations of RIA’s that manage private equity funds or hedge funds. The risk alert is targeted toward private fund advisers and investors of private funds to give fund advisers assistance in reviewing their compliance programs, and investors insights into adviser deficiencies. The risk alert covers private fund adviser deficiencies in areas including (A) conflicts of interest, (B) fees and expenses, and (C) policies and procedures relating to material non-public information (“MNPI”).
Conflicts of Interest
Investment Advisers must make full and fair disclosure of all conflicts of interests. The OCIE has observed several conflicts that have been inadequately disclosed under Section 206 or Rule 206(4)-8. They include 9 different conflict types that private fund advisers have had deficiencies in disclosing.
Fees and Expenses
Under Section 206 or Rule 206(4)-8 the OCIE recorded deficiencies in allocation of fees and expenses, “Operating Partners”, Valuation, and Monitoring/board/deal feeds and fee offsets.
MNPI/Code of Ethics
Section 204A of the Advisers Act (“Section 204A”) requires investment advisers to establish and enforce policies designed to prevent the misuse of MNPI as well as adopting and maintaining a code of ethics. The OCIE found deficiencies in section 204A and the Code of Ethics Rule for advisers and note common deficiencies of private fund advisers.
If you manage private equity funds, hedge funds, or other private funds, over the last 15 years, we’ve developed Industry Leading resources and services to assist you in mitigating the potential deficiencies identified by OCIE.
Feel free to contact us with any questions or concerns.
The Team at Vigilant