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Adviser-led secondary transactions have seen explosive growth over the last five years.  That growth has brought increased regulatory concerns over the conflicts of interests inherent in these transactions and a perceived lack of transparency into this market.  New SEC rules adopted in 2023 will arm regulators with additional tools to identify, exam and investigate market practices.  It is therefore critical for managers running an adviser-led secondary transaction to not only comply with the new rules as they become effective but to structure any such transaction with the SEC’s concerns in mind. 

On October 17, 2016, Marc Wyatt, the Director of the SEC’s Office of Compliance, Inspection and Examinations, gave a keynote address to the National Society of Compliance Professionals titled: Inside the National Exam Program in 2016.  In addition to discussing his general perspective concerning the program, he provided some key statistics that help put OCIE’s exam program in context:

  • OCIE has examination responsibility for over 28,000 registrants, including more than 12,000 investment advisers, approximately 11,000 mutual funds and exchange-traded funds, and over 4,000 broker-dealers.
  • OCIE has a total staff of approximately 1000 individuals.
  • OCIE completed 2,400 total exams in FY 2016.
  • Typically, about 10% of OCIE exams are referred to Enforcement.
  • FINRA and the SEC have historically examined 50% of BDs each year.
  • OCIE has historically examined approximately 10% of registered investment advisers per year.
  • Over the past two years, over 2,000 new investment advisers have registered with the SEC.
  • OCIE has about 450 staff members focused on Investment Adviser/Investment Company (IA/IC) exams.
  • The Private Funds Unit within OCIE currently has four exam managers, and primarily targets the New York, Boston, Chicago and San Francisco areas, each region having a high concentration of registered investment advisers to private funds.
  • There are approximately 4500 private fund advisers registered with the SEC.
  • Jennifer Duggins, co-head of the Private Funds Unit, recently noted that this unit’s goal was to double the number of examiners assigned to the unit from its current staff of 12-14 to a target of 25-30 examiners.