The phone rings and the caller ID pops up with US Securities and Exch… You swallow hard. They are coming. What now?
One thing a private fund manager can do to smoothly take the SEC through an exam is to have an introductory presentation when they walk in the door.
The SEC examiners will have read your firm’s Form ADV and looked at your firm’s website. They may also have run a quick web search for any stories. That three things are unlikely to give them much insight into the operations of your firm. The better they understand your firm, the less likely they are to be concerned. (Assuming you are not actually lying, cheating or stealing.)
The goal of the presentation should be to provide an understanding of the firm, that your firm is treating its investors well, that your firm understands the regulatory requirements, and that your firm is serious about compliance.
These are some things I have in my opening presentation:
- History of the firm
- Ownership of the firm
- Overview of each fund: closing date, investment period, size
- Investment strategy for each fund
- Types of investors (look at Form PF filing)
- Case study for an investment: why we bought it, what we plan to do with it, how to make money from it
- Key personnel
- Overview of compliance program
- Fees and revenue paid to the firm and how calculated
- Custody and how you comply with the custody rule
- Valuation policy and procedures
- Marketing
- Conflicts in the firm and how they are managed
- Address key regulatory compliance requirements
- Code of ethics
- Political contributions
- Disaster recovery/business continuity
- Placement agents
- Anti-money laundering
The presentation is not a pitch to investors, so it’s not time to sell the firm or use a pitchbook. (You likely could take some elements from the pitchbook for this opening presentation.) You want to sell compliance.
I recommend putting together the opening presentation now and updating it every quarter. Once that call comes from the SEC you are going to be crunched for time. It’s much easier to update the presentation than create a new one.