SEC’s examination program issues a risk alert on investment adviser due diligence processes
Abstract
Purpose
To summarize and interpret a Risk Alert titled “Investment Adviser Due Diligence Processes for Selecting Alternative Investments and their Respective Managers,” issued by the USA Securities and Exchange Commission Office of Compliance Inspections and Examinations on January 28, 2014.
Design/methodology/approach
Focuses on investment advisers selecting underlying alternative investment managers. Discusses the scope of the Staff’s observations. Describes several due diligence practices observed by the staff, including seeking greater transparency; utilizing third-party information aggregators, administrators, custodians, and auditors; using more quantitative analysis; and extending due diligence process to include operational and liquidity reviews. Lists several observed warning indicators that could lead an advisor to conduct additional due diligence, request the underlying manager to make appropriate changes, or reject or veto an investment. Identifies both positive and negative compliance practices.
Findings
The Risk Alert noted several observed risk indicators that could lead an adviser to conduct additional due diligence, request the underlying manager to make appropriate changes, or reject or veto the investment. Advisers can assume that SEC Staff will ask about these risks in future adviser examinations.
Originality/value
Practical guidance from an experienced financial services and securities lawyer.
Keywords
Acknowledgements
© 2014 Sutherland Asbill & Brennan LLP
Citation
H. Walsh, J. (2014), "SEC’s examination program issues a risk alert on investment adviser due diligence processes", Journal of Investment Compliance, Vol. 15 No. 2, pp. 26-28. https://doi.org/10.1108/JOIC-05-2014-0019
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Authors