SEC issues reminder on investment adviser due diligence

BY KEN TYSIAC

Investment advisers need to follow appropriate due-diligence processes when recommending or placing clients’ assets in alternative investments such as hedge funds, private-equity funds, or funds of private funds, the SEC said in a risk alert issued Tuesday.

According to the alert from the SEC’s Office of Compliance Inspections and Examinations (OCIE), advisers are:

  • Seeking more information and data directly from the managers of alternative investments.
  • Getting third parties to supplement and validate the information managers of alternative investments provide.
  • Performing additional quantitative analysis and risk assessment of alternative investments and their managers.


“Money continues to flow into alternative investments,” OCIE Director Drew Bowden said in a news release. “We thought it was important to assess advisers’ due-diligence processes and to promote compliance with existing legal requirements, including the duty to ensure that such investments or recommendations are consistent with client objectives.”

While examining advisory firms, SEC staff observed the following deficiencies:

  • Omitting alternative investment due-diligence policies and procedures from their annual reviews.
  • Providing potentially misleading information in marketing materials about the scope and depth of due diligence conducted.
  • Having due-diligence procedures that differ from those they describe in disclosures to their clients.


Ken Tysiac (
ktysiac@aicpa.org ) is a JofA senior editor.

MANAGEMENT ACCOUNTING

Developing finance leaders

A good leader recognizes that part of the job is developing the next generation of leaders. Veronica McCann, CGMA, a former division CFO at Commerzbank in Singapore, shares tips on developing future finance leaders.

PROFESSIONAL ISSUES

Belicia Cespedes: A CPA at 17

Through hard work and determination, Belicia Cespedes earned the credential before she was even eligible to vote.

SPONSORED REPORT

How to audit high risk areas

Revenue recognition, internal control over financial reporting, accounting estimates and going concern are areas of audit that have emerged as particularly challenging and complex.