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, available at tinyurl.com/l2gcmfk.
According to the alert from the SEC’s Office of Compliance Inspections and Examinations, 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.
The recent financial crisis magnified the importance of investor protection. Regulators can play a vital role in ensuring that securities firms protect client assets. The International Organization of Securities Commissions (IOSCO) published eight principles to guide regulators as they supervise securities firms on the protection of client assets.
The guidance refers to securities firms—including derivatives
firms—that are subject to regulatory supervision as “intermediaries.”
The principles are available at tinyurl.com/bntsbyw.