News

SEC releases 2022 examination priorities with focus on private funds

05 April 2022

On March 29, the Division of Examinations (the Division) within the U.S. Securities and Exchange Commission (the SEC) released its annual list of examination priorities for investment advisers regulated by the SEC under the U.S. Investment Advisers Act of 1940 (the Advisers Act) and investment companies under the U.S. Investment Company Act of 1940 (the Company Act).

Private funds

In light of the SEC’s February 2022 proposal of comprehensive new rules for private funds, and a January 2022 risk alert on private fund practices, it should be no surprise that the 2022 priorities list focuses heavily on private funds. The Division highlighted that more than 5,000 registered investment advisers (RIAs), totaling 35% of all RIAs, manage around US$18 trillion in private fund assets, marking a 70% increase in assets managed by private funds.

Among other things, the Division prioritized many of the core compliance matters that perennially top the list of RIA compliance concerns, including:

the calculation and allocation of fees and expenses, including the calculation of post-commitment period management fees and the impact of valuation practices at private equity funds;
the potential preferential treatment by RIAs of certain investors to private funds that have experienced issues with liquidity, including imposing gates or suspensions on fund withdrawals;
compliance with the Advisers Act Custody Rule, including the “audit exception” to the surprise examination requirement and related reporting and updating of Form ADV regarding the audit and auditors that serve as important gatekeepers for private fund investors;
the adequacy of disclosure and compliance with any regulatory requirements for cross trades, principal transactions, or distressed sales; and
conflicts around liquidity, such as RIA-led fund restructurings, including stapled secondary transactions where new investors purchase the interests of existing investors while also agreeing to invest in a new fund.