Through a growing number of enforcement actions, speeches by senior officials and written guidance, the Securities and Exchange Commission (the SEC) has sent a clear message that the fiduciary obligations and compliance programs of investment advisers to private funds will be subject to increased levels of scrutiny. On May 12, 2016, Andrew Ceresney, Director of the SEC’s Division of Enforcement, gave a speech addressing the recent enforcement actions brought against private fund sponsors. His speech summarized enforcement actions against advisers in three key categories: (1) advisers that receive undisclosed fees and expenses (e.g., undisclosed acceleration of monitoring fees), (2) advisers that impermissibly shift and misallocate expenses (e.g., misallocation of “broken deal” expenses and misallocation of expenses among different funds or between the adviser and the fund) and (3) advisers that fail to adequately disclose conflicts of interest (e.g., failure to disclose related third party transactions). Mr. Ceresney indicated that the SEC will continue to “aggressively bring impactful cases” in the private equity space.

In light of Mr. Ceresney’s speech and the SEC’s focus on these issues, private equity advisers should review their existing disclosure and compliance policies and procedures to ensure that their practices in these areas match their disclosure and are consistent with their fiduciary duty to clients. Below is a link to Mr. Ceresney’s speech for your review.

View Mr. Ceresney’s speech here.