The SEC’s Office of Compliance Inspections and Examinations, or OCIE, has issued a Risk Alert on the due diligence processes that investment advisers use when they recommend or place clients’ assets in alternative investments such as hedge funds, private equity funds, or funds of private funds.
While the alert noted some positive developments, staff observed certain deficiencies in several of the advisory firms examined, including:
- Omitting alternative investment due diligence policies and procedures from their annual reviews, even though these investments comprised a large portion of certain advisers’ investments on behalf of clients
- Providing potentially misleading information in marketing materials about the scope and depth of due diligence conducted
- Having due diligence practices that differed from those described in the advisers’ disclosures to clients.
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