SEC due diligence alert regarding processes for selecting alternative investments is released.
The SEC has been reviewing due diligence processes for investment advisers for alternative investments and is getting concerned. After all, assets under management, or “AUM” in industry talk, reached $6.5 trillion for alternative investments. The SEC issued an alert reminding advisers to perform due dilience to determine whether the investment:
- Meets the clients’ investment needs; and
- Is consistent with disclosed investment strategies.
According to the SEC, “alternative investments” include hedge funds, private equity, venture capital, real estate and funds of private funds.
The SEC conducted examinations of registered advisers and noted the following trends in alternative investment due diligence to identify risk indicators:
- Advisers are seekeing more information directly from alternative investment managers
- Advisers are using third parties to supplement their analyses and verify data
- Advisers are performing additional quantitative analysis of performance returns and risk measures
- Advisers are expanding their due diligence processes and focus areas
The SEC then used the alert to remind advisers about their obligations to adopt and review their compliance programs and codes of ethics.
- SEC Office of Compliance Inspections and Examinations issues risk alert for due diligence processes by investment advisers