Tag: IA Watch

More Private Fund Advisers Register than SEC Expected

From the great sources at IA Watch:

The numbers may not be final, but they’re close. Some 1,400 private fund advisers registered with the SEC by the first week of April, sources tell IA Watch. Owing for some stragglers, these appear to be what Dodd-Frank wrought by way of new advisers. They join some 2,600 private fund advisers that had elected to register long before the congressional mandate.

By last week, an additional 1,968 so-called exempt-reporting advisers had filed (IA Watch, June 27, 2011). These private fund advisers will have to update their subset of Form ADV questions annually. The agency expects more ERAs to file this month, bringing the total to about 2,000 by May.

The additional reporting growing out of Dodd-Frank and the financial crisis means the agency now has data on about 38,000 private funds, including feeder funds, the source states.

There are now more than 12,600 RIAs, although the agency expects about 2,600 of these to shimmy over to state registration by July (IA Watch, Dec. 12, 2011).

SEC Sweep Letter for Private Equity Funds

The San Francisco Office of the SEC has an informal inquiry into the valuations of private equity funds. IA Watch has received a copy of the sweep letter from the Division of Enforcement directed to a private equity fund manager.

Some highlights in the request:

  • All formation and offering documents for the fund, including private placement memoranda, limited partnership agreements, and operating agreements
  • List of investors and capital commitments
  • List of all investments, realized amount, and gross IRR
  • All communications with investors regarding fund performance
  • Support for valuations of the fund assets for the most recent fiscal year

It seems to be a fairly short list for an SEC document request. But any SEC document request is intimidating.

The request shouldn’t be construed as indication that there has been a violation of the federal securities law. It’s indication that the SEC is continuing to look for funds and managers that manipulated valuations.

Sources:

What is the SEC Looking For With Private Fund Managers

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: