As it is 2013, it is important for SEC registered private equity managers to focus on upcoming filing deadlines and on-going compliance issues for the year ahead. All registered private equity managers should note that there are two large filing deadlines looming during the first part of the year. In March, all registered investment advisers (“RIA’s”) must prepare and file their first annual amendment to their Form ADV. Followed quickly by the preparation of Form PF in April.
In addition to the impending regulatory filings, RIA’s are required to conduct an Annual Compliance Review of their compliance program during 2013. This is an opportunity to: address any compliance issues that occurred during the past year; assess the effectiveness of their compliance program; and enhance their policies and procedures to comply with ever evolving regulatory best practices. In particular, we are encouraging our private equity clients to conduct a detailed review of their conflicts of interest and valuation policies.
Private equity managers’ conflicts of interest policies should be designed to effectively identify and resolve any potential conflicts of interest. Specific areas of concern often include outside activities of key persons of the firm, join ventures, co-investments and many other similar arrangements that are commonplace in the private equity space.
Managers should also assess and possibly enhance their current valuation policies and procedures. Through a number of recent enforcement actions, the SEC has made it clear that they will continue to hone in on valuations during audits. Private equity managers should ensure that their current valuation procedures are accurate, comprehensive, and involve multiple levels of review.
In addition, a major focus for RIA’s in 2013, and private equity managers in particular, should be to prepare their firms for an audit. The SEC announced this fall that they will be auditing a large percentage of recently registered RIA’s, and further that they are planning on paying particular attention to private equity managers. RIA’s should work with legal counsel and/or compliance consultants to review examples of recent request letters and determine if they would be able to respond in a timely manner.
Finally, there will be key regulators appointed during President Obama’s second term, and those individuals will play a role in both timing and scope of remaining Dodd-Frank rules. As timing and scope of regulations are very difficult to predict and it is important to continue to take a long-term view when it comes to monitoring regulatory developments and helping to analyze the impact of those developments.