IA Watch published a few recent document request letters in connection with SEC examinations of investment advisers. One is a document request letter sent to a private fund manager (sub. required).
These are some of the items requested that caught my attention:
- Organizational chart showing ownership percentages
- investment strategy
- Amount of adviser’s equity interest
- Amount of adviser’s affiliated person’s interest
- Specific exemptions from registration under the Securities Act
- Services the adviser is providing
- Amount of leverage, both explicit (on-balance sheet) and off-balance sheet (futures and certain other derivatives)
- Account statements sent to investors
- Names of investors who purchased and redeemed an interest in the fund during a specific period
- Description of all positions held in side pockets or special situation accounts
- Side agreements in which investors are participants
It’s clear from the letter that examiners are focused on custody issues and side pocket issues.
The SEC has been up front about this. The custody rule may be a headache, but its intended to prevent another Madoff. By getting account statements directly from the custodian instead of the adviser, you have a control in place to prevent fraud.
Sources: