Badge of honour: The ‘ISAE 3402’

Burned by the financial crisis, more institutional investors are demanding fund managers subject their internal controls to an independent review.  

Traditionally GPs have met this demand by undergoing a SAS 70, a once rare voluntary and independent review of a firm’s investment management standards, fund administration and information technology practices. 

But since mid-2011, the International Standard on Assurance Engagements 3402 (ISAE 3402) has superseded the SAS 70, thus becoming the new “mother of all audits”, as described by some private equity CFOs, who add the new standards set stricter requirements and achieves a higher level of transparency over firms’ internal controls. 

Zurich-based fund of funds manager Adveq has become one of the first firms in the private equity industry to pass an ISAE 3402 controls reporting audit, according to a statement, confirmed by Dimitri Senik from PwC who led the examination.

In an interview Senik said a growing number of alternative investment managers were expressing interest in the audit as a way of demonstrating their worth to increasingly selective investors. 

Philippe Bucher, Adveq’s chief financial officer, told PE Manager his firm had control over how deep PwC’s search would go, but elected to undergo the more rigorous “Type 2” examination to not only test whether controls were in place, but to review the “operating effectiveness of the controls over a specified review period”.