In a surprisingly early announcement, the Securities and Exchange Commission’s Division of Examinations has released its 2024 examination priorities just two weeks into the start of its fiscal year. I’m used to seeing this released months into the fiscal year.
“Since the publication of our fiscal year 2023 priorities approximately eight months ago, we have advanced our mission as reflected in this year’s priorities, which provide both continuity and change to reflect a fluid and evolving economic and regulatory landscape. Given the shorter interval in between the publication of our priorities, several initiatives and focus areas from last year remain as fiscal year 2024 priorities.”
I’m focused on the private funds section.
- The portfolio management risks present when there is exposure to recent market volatility and higher interest rates. This may include private funds experiencing poor performance, significant withdrawals and valuation issues and private funds with more leverage and illiquid assets.
- Adherence to contractual requirements regarding limited partnership advisory committees or similar structures (e.g., advisory boards), including adhering to any contractual notification and consent processes.
- Accurate calculation and allocation of private fund fees and expenses (both fund-level and investment-level), including valuation of illiquid assets, calculation of post commitment period management fees, adequacy of disclosures, and potential offsetting of such fees and expenses.
- Due diligence practices for consistency with policies, procedures, and disclosures, particularly with respect to private equity and venture capital fund assessments of prospective portfolio companies.
- Conflicts, controls, and disclosures regarding private funds managed side-by-side with registered investment companies and use of affiliated service providers.
- Compliance with Advisers Act requirements regarding custody, including accurate Form ADV reporting, timely completion of private fund audits by a qualified auditor and the distribution of private fund audited financial statements.
- Policies and procedures for reporting on Form PF, including upon the occurrence of certain reporting events.
Of these seven, only #3: fee calculation and #6: custody) carry over from last year.
I’m curious about Form PF. Exam staff typically have, in the past, had limited access to Form PF data.
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