SEC Examinations Unit To Strengthen Policing Against Private Fund Failings: FT

The Securities and Exchange Commission has tightened its policing of the booming market for unlisted assets with greater oversight of private funds, writes Financial Times.

“Private fund managers are now more likely to be examined than at any other time over the past five years,” said Igor Rozenblit, founder of the Iron Road Partners consultancy and a former senior SEC regulator. 

Assets managed by the U.S. registered private funds have surged by 70% over the past five years to about $18 trillion as more investors have turned to hedge funds, private equity, real estate, and venture capital funds in search of better returns. 

Gary Gensler, SEC chair, has proposed that stricter rules covering fees, expenses, and performance metrics should be imposed on private funds following the publication by the SEC of a series of highly critical reports, known as risk alerts, which detailed numerous instances of rule-breaking. 

But the rapid growth of private funds presents significant challenges for the resources, which lost experienced staff during the hiring freeze across the SEC between October 2016 and April 2019.

The division completed more than 2,200 examinations of registered investment advisers in the financial year ending September 2021, accounting for just 16% of all investment advisers.

Gensler has acknowledged the heavy workload shouldered by his staff and appealed to Congress to raise the SEC’s budget to $2.15 billion for the 2022-23 fiscal year, which starts in October, an increase of 7.5%.