Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

SEC Chair Mary Jo White recently delivered pointed remarks to a conference attended by hedge fund and private equity advisors.

One portion of her remarks was directed at operational risks of private funds, such as cybersecurity.  Another portion of her remarks outlined breaches of fiduciary duties discovered during SEC presence exams.  Chair White highlighted:

  • Concerns that some hedge fund advisers may have used marketing materials that included back-tested performance numbers, portable performance numbers, and benchmark comparisons without key disclosures.
  • In exams of private equity advisers, examiners also observed instances of conflicts involving fees and expenses. For example, staff was concerned that some advisers may have been improperly shifting expenses away from the adviser and to the funds or portfolio companies by, for example, charging a fund for the salaries of the adviser’s employees or hiring the adviser’s former employees as “consultants” paid by the funds.
  • Examiners also continue to observe advisers collecting millions of dollars in accelerated monitoring fees without disclosing the practice.
  • Next up on the enforcement list appear to be private fund real estate advisers. The SEC’s Private Funds Unit in OCIE is completing a review of private fund real estate advisers, many of which may be hiring related parties. Staff is concerned that disclosure about these arrangements may be non-existent or potentially misleading, particularly with regard to whether or not the related parties charge market rates.


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