Advisers to hedge and private equity funds should know the SEC’s Asset Management Unit includes conflicts of interest among its 2015 priorities.
Monitoring and disclosing or mitigating conflicts of interest stand at the center of an adviser’s fiduciary duty. The compliance program rule (Investment Advisers Act section 206(4)-7) instructs that before you write your firm’s compliance P&Ps you “should first identify conflicts … creating risk exposure for the firm and its clients in light of the firm’s particular operations and then design policies and procedures.” The SEC has actively encouraged firms to have an exacting approach to spotting and dealing with conflicts.
SEC examiners’ attention to conflicts of interest remains red hot. “An adviser’s failure to disclose conflicts of interest to clients subject it to possible enforcement action,” says Julie Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit. She further cautions that there will be “a number of significant conflicts cases this year.”
Expect the allocation of investment opportunities, risk controls and disclosure, particularly for illiquid and leveraged investment products and higher risk products targeted to senior investors to be scrutinized.
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