SEC Finds Problems in Private Fund Advisor Exams

The size and complexity of advisors vary widely from, for example, an advisor with a private fund limited to investors made up of friends and family, to an advisor with a worldwide footprint managing multiple private funds with hundreds of billions of dollars in assets, the agency explained.

Among other issues, the exam staff observed failures to act consistently with material disclosures to clients or investors. For instance, failures to obtain informed consent from Limited Partner Advisory Committees, Advisory Boards or Advisory Committees required under fund disclosures.

SEC staff also observed private fund advisers that did not follow practices described in their limited partnership agreements.

Another infraction: private fund advisors providing to investors or prospective investors misleading track records or other marketing statements that appear to violate Rule 206(4)-8.

In addition, “Advisers Act Rule 204-2(a)(16) requires advisers to maintain all accounts, books, internal working papers, and any other records or documents that are necessary to form the basis for or demonstrate the calculation of any performance or rate of return of any or all managed accounts or securities recommendations. Exams staff has also observed failures by private fund advisers to maintain these required records,” the alert states.