On March 3, 2021, the SEC’s Division of Examinations announced its examination priorities for 2021. Compared to last year, this year’s edition contains an expanded section specifically addressed to private funds. For private fund managers, the exam staff states that it will target a list of issues, including:

  • Preferential treatment of certain investors by advisers to private funds that have experienced issues with liquidity, including imposing gates or suspensions on fund withdrawals;
  • Portfolio valuations and the resulting impact on management fees;
  • Adequacy of disclosure and compliance relating to cross trades, principal investments, or distressed sales;
  • Conflicts around liquidity, such as adviser led fund restructurings or stapled secondary transactions;
  • Risks surrounding non-performing loans and defaults for funds that have a higher concentration of structured products, such as collateralized loan obligations and mortgage backed securities;
  • The impact of recent economic conditions on portfolio companies owned by private funds (e.g., real estate related investments).

Read the full client alert here.