Kirkland AIM

SEC’s Examination Division Issues Priorities for 2021

On March 3, 2021, the SEC’s Division of Examinations (“Exams”) published its Examination Priorities for 2021. Certain of the 2021 priorities are consistent with priorities noted in past years, such as a focus on investment risks and conflicts of interest disclosure, a continued interest in whether an investment adviser has fulfilled its duty of care and duty of loyalty as a fiduciary, and heightened attention to cybersecurity and information security risks. Exams will also continue to prioritize examinations of investment advisers that have not been examined for a number of years or who have never been examined.

Of specific interest to private fund sponsors will be a focus by Exams on: 

  • portfolio valuations and impacts on advisory fees; 
  • any material impact caused by recent economic conditions to portfolio companies held by private funds (e.g., real estate related investments); 
  • conflicts around adviser led fund restructurings, including stapled secondary transactions;
  • adequacy of disclosure on and compliance with regulatory requirements for cross trades, principal investments or distressed sales;
  • disclosure to investors in private funds with a concentration on structured products (e.g., collateralized loan obligations and mortgage backed securities) focusing in particular on whether the disclosure adequately describes the risk associated with a fund holding non-performing loans or loans with higher default risk; 
  • funds with a focus on, or referred to as, sustainable, socially responsible, impact investing or environmental, social and governance (“ESG”);
  • preferential treatment of certain investors in funds that have experienced liquidity issues, e.g., the imposition of gates or suspensions on fund withdrawals;
  • controls around the use of alternative data (e.g., use of data analytics tools) as part of an adviser’s business and investment decision-making process, including whether appropriate controls are in place around the receipt, use and creation of such information; and
  • exposure to and engagement with digital assets.
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