Common Deficiencies in Private Fund Manager Exams: What you need to know


Tanner Beverly, Dan Campbell, Shivani Choudhary and Vivek Pingili

Publish Date



  • SEC
  • Compliance

On January 27, 2022, the U.S. Securities and Exchange Commission’s (SEC’s) Division of Examinations (EXAMS) shared observations relating to common deficiencies uncovered in the examination of private fund advisers over a five-year period. These observations are a sequel to, and supplement, the observations EXAMS shared in their June 2020 risk alert.  

While this risk alert is aimed primarily at SEC-registered private fund advisers, we believe the topics covered by the alert are largely relevant to other types of private fund advisers subject to SEC oversight (such as exempt reporting advisers).  

Additionally, as is often the case with SEC guidance aimed at private fund managers, this risk alert may serve as a useful governance, risk, and compliance (GRC) best-practices benchmarking tool for non-US private fund advisers who are not subject to SEC oversight (directly or indirectly). 

As has been the case with multiple SEC public remarks over the past year, in this risk alert, EXAMS highlights the significant growth and increasing prominence of the private fund industry to reiterate the case for increased scrutiny. The risk alert specifically notes that approximately 35% of SEC- registered investment advisers manage private funds whose collective assets are approximately $18 trillion, and goes on to state that in the past five years, private fund assets across liquid and illiquid strategies have experienced a 70% increase. 

The observations highlighted in this risk alert are intended to both alert private fund investors to recurring risk areas, as well as serve as a helpful guide for compliance staff at private fund managers to enhance their compliance programs. Additionally, the observations further underscore the SEC’s increasingly intensifying approach to the examination of private markets fund managers under the Gensler administration, which ACA covered in a recent blog. It is particularly noteworthy that a significant portion of these recent observations relate directly to private markets fund managers. 

The observations, which are generally consistent with ACA’s own experiences in advising private fund managers, are fairly focused and cover four key areas:

  • Failure to comply with contractual arrangements with, and disclosures to, investors

  • Misleading marketing practices (with an overwhelming emphasis on performance calculations and reporting)

  • Inadequate investment due diligence and vendor due diligence processes

  • Improper hedge clauses in fund governing documents

Additionally, it is worth noting that many of the issues covered by this risk alert have been the subject of multiple enforcement actions.

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Download our Private Markets Quarterly Update 

This is just one of many insightful articles included in our Private Markets Quarterly Update 2022 Q1. Download the full newsletter to learn about: 

  • The SEC’s Examination Division 2022 Examination Priorities 
  • The SEC’s Rule Proposals Seek to Reform the Private Fund Industry 
  • Real Estate Fund Advisers: Impact of SEC’s Proposed Private Fund Regulations 
  • The SEC’s Proposed Amendments to Form PF 
  • The SEC’s Proposed Rule Amendments Regarding SPACs, Shell Companies and Projections 
  • The SEC’s Sweep Enquiries Relating to Unauthorized Electronic Communications 
  • The Custody Rule: Recent Noteworthy SEC Enforcement Actions 
  • Exempt Reporting Advisers – Lessons From a Recent SEC Enforcement Activity 


If you have any further questions about these deficiencies, or how ACA can help your firm meet your regulatory requirements, please reach out to your ACA consultant or contact our team here.