This year, private investment funds are likely to face increased regulatory scrutiny and litigation risk. This is due to several market developments, including transparency and compliance initiatives of limited partners.

There are several areas that should be on every private fund sponsor’s list. Fees and expenses will continue to be a top priority for the SEC. Sponsors should perform a comprehensive review to confirm adequate disclosure of fund expenses. With a prediction of unicorn devaluations and failures, it is important to be mindful of potential areas of dispute. This may also amplify the scrutiny of valuation practices. In addition, sponsors seeking fund extensions should document justifications, including commercial benefits of the extension for their LPs, and their strict compliance with the terms of the fund agreements for such extensions. With the growing trend of plaintiffs naming additional parties as defendants, including investments funds and affiliated sponsor entities, it is important to consider the legal obligations and increased risk of liability. Moreover, it is crucial to guard against cybersecurity threats and retain experts to assist if necessary. Lastly, sponsors should review professional liability insurance to assess regulatory risk.

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*Reproduced with permission from www.privatefundsmanagement.net.