SEC ‘presence exam’ initiative nearly complete

In testimony before Congress, Securities and Exchange Commission (SEC) Chair Mary Jo White said she expects the Commission’s ‘presence exam’ initiative to be completed in October.

Back in 2012 GPs managing north of $150 million were required to enter the SEC's remit, which brought the possibility of undergoing examinations conducted by the regulator’s Office of Compliance Inspections and Examinations (OCIE).

There were approximately 1,500 newly-registered private fund advisers and the SEC set a goal of having 25 percent of these firms examined within two years.

White noted that as of early September 2014, staff had completed approximately 340 examinations of newly registered private fund advisers, and over 40 additional examinations were underway, which when completed would mean the SEC will have hit its target.

Presence examinations have been shorter in duration and more streamlined than typical GP examinations. They were designed to understand the private funds industry and inform GPs of their new regulatory obligations, as well as permitting the SEC to examine a higher percentage of new registrants. Real estate firm Equity International had its presence exam in 2012 just after the program was first announced. The firm had one week to upload materials to the SEC’s data management system, then had another week long waiting period before the arrival of SEC examiners, the firm’s general counsel and chief compliance officer Patrick Kassen said at the PERE CFO Forum in June.

GPs should not expect the end of the presence exam to mean the end of the SEC’s interest in private funds. In April the regulator created an inspections unit dedicated to private funds, which is co-chaired by Igor Rozenblit and Marc Wyatt. The SEC will also release a report on its findings from the presence exam initiative, which follows a speech from SEC’s top inspector Andrew Bowden, who in May slammed many of the industry’s current fees and expense allocation practices.