The Securities and Exchange Commission’s Investor Advisory Committee (“IAC”) held its first meeting of 2015 on February 12th. SEC Chair, Mary Jo White, gave opening remarks and highlighted areas of focus for the SEC in 2015, which included obtaining sufficient levels of funding for investment adviser examinations and completing its review of the “accredited investor” definition.
Increases in the 2015 appropriations will allow the Securities and Exchange Commission (“SEC”) to hire additional examiners to help increase the SEC’s examination coverage of investment advisers. With a goal of increased presence exams, private equity fund managers should review the priorities of the Office of Compliance, Inspections and Examinations (“OCIE”) for 2015. Of note for private equity fund managers is the OCIE’s expectation to allocate examination resources to review private equity fees and expenses. The OCIE is devoting time and attention to the area as a result of the high rate of deficiencies observed during the SEC’s Presence Exam Initiative. Private equity fund managers should ensure they have the appropriate disclosures, allocations and controls in place as the exam coverage and resources expand.
In October, the IAC delivered its five recommendations regarding changes to the “accredited investor” definition. The IAC’s recommendations seemed to run the gamut, from limiting the percentage of an individual’s income or assets that could be invested in private offerings and excluding certain assets from the threshold test to expanding the definition based on financial sophistication. The SEC’s Advisory Committee on Small and Emerging Companies is set to vote on its recommendation. Prior meetings indicate that its recommendation will call on the SEC to expand the definition to include financially sophisticated investors and leave the current thresholds unchanged. How the SEC will act continues to remain unclear, however, an expansion to include financially sophisticated investors seems to be garnering support.