On November 10, 2021, at the Institutional Limited Partners Association (ILPA) Summit, U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler signaled increased SEC scrutiny of private funds and their managers.1 Gensler noted the significant growth and importance of private funds – particularly, private equity and hedge funds – to our capital markets, with distinct focus on fees and expenses, side letters, fiduciary duty and conflicts of interest. Gensler’s speech reflected a risk alert (Risk Alert) issued by the SEC’s Division of Examinations (EXAMS) on the same day outlining deficiencies it observed in its examinations of advisers’ fee calculation practices.2
This was not the first time Gensler identified private funds as an area of interest for the SEC since taking office in April 2021. In testimony before the Financial Services Committee on May 26, 2021 – just weeks after being sworn into office – Gensler identified trends in the private fund industry, including growth in the numbers of funds, and new strategies, structures and business practices, as affecting the SEC’s going-forward budget needs.3 Gensler also indicated the SEC’s continuing focus on private fund advisers’ disclosures of investment risks and conflicts of interest, fees and expenses, liquidity, valuation of assets, and controls around material non-public information.
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