Reported by Janaya Moscony

(Summarized version featured below)

In her article “Predictions for 2025: What Private Fund Advisers Can Expect from SEC Examinations,” Janaya Moscony discusses anticipated trends in the Securities and Exchange Commission’s (SEC) approach to private equity and hedge fund managers under the new administration. Despite speculations about a more lenient SEC, Moscony suggests that examiners will maintain rigorous oversight, focusing less on “rulemaking through enforcement” and potentially imposing more moderate sanctions than those under Chair Gensler. This reflects the SEC’s ongoing commitment to protecting the investing public, with examiners feeling increased pressure to demonstrate their effectiveness. 

The SEC’s Division of Enforcement’s 2025 Examination Priorities continue to emphasize scrutiny of private fund advisers, particularly regarding the adequacy of conflict of interest disclosures, fairness in fee and expense calculations, and compliance with new SEC rules and amendments. Key areas of focus include fees and expenses, allocation of expenses, valuation and calculation of fees, disclosure of financial conflicts, and relationships with third parties. This indicates that private equity and hedge fund managers should prepare for continued rigorous examinations in these domains. 

Moscony highlights the SEC’s expectation for transparency from fund managers, emphasizing that disclosures provided to investors must accurately reflect actual practices. The SEC has previously taken enforcement actions against advisers for vague fee structures, inadequate conflict disclosures, and failure to implement policies ensuring accurate fee calculations as per limited partnership agreements (LPAs). To mitigate such risks, advisers should ensure clear and explicit disclosures and familiarize themselves with specific fee and expense provisions in their LPAs. 

Additionally, Moscony advises fund managers to implement robust policies and procedures for expense allocation, accompanied by ongoing reviews. Given the SEC’s meticulous examination approach, it is crucial for managers to proactively assess and document their allocation practices to ensure compliance and readiness for potential examinations. 

In summary, Moscony’s article underscores that despite potential administrative changes, the SEC’s rigorous examination of private fund advisers is expected to persist in 2025. Fund managers should prioritize transparency, ensure accurate disclosures, and establish comprehensive policies to navigate the SEC’s continued focus on protecting investors and maintaining market integrity. 

Read full report: https://www.jdsupra.com/legalnews/predictions-for-2025-what-private-fund-6136651/