Looking Ahead – Five Compliance Predictions for 2016

With my 2015 almost gone, I was thinking about what to expect in 2016 in the private fund and real estate fund compliance area. My crystal ball is not very reliable. If it was fully operational, I would have bought Apple stock in 2002 before the iPod came out.

Real Estate Fund Enforcement Actions

There was a focused review of real estate fund advisors that wrapped up about a year ago. Given how enforcement actions work through the SEC, I expect the enforcement actions from the bad apples will come out in 2016. One area he noted was problematic was when a fund manager claimed to providing services at market rate, but had no evidence that the rate used was actually market rate. I had the chance to ask a member of the private funds unit if we could expect these actions. The response was a strict “no comment.”

Succession Planning

Several speeches coming from the SEC have pointed to certain operational risks becoming part of the compliance mandate. The SEC staff is developing recommendations to help advisers assess and plan for the impact on investors when an investment adviser is no longer able to serve its clients. For most fund managers, investors already cast a wary eye on firms that don’t have succession plans in place. The SEC is going to stick its thumb into this tricky area. This will be an area that compliance will loath as they have to talk to their firms’ principals about death and disability.

Fees and Expenses

This area is a continuing area of focus for private fund exams. I expect more enforcement actions will come out in 2016. I’m sure there will be new types and approaches that will require firms to react to the SEC’s interpretation of what is fair.

Anti-Money Laundering

If you are opposed to anti-money laundering requirements then you will get labeled as pro-terrorism. FinCEN will come out with new regulations imposing anti-money laundering requirements on investment advisors and fund managers.

Employees, Consultants and Expenses

I suspect we will see more cases brought by the SEC against firms that are dedicating employees to portfolio companies and charging those expenses to investors instead of the management company.