Unexamined PE firms can expect SEC visit

Half of registered investment advisors that have yet to undergo an SEC exam can expect a visit from inspectors sometime in 2014, the agency’s head examiner reportedly revealed.

About half of the “never-been-examined population” of registered investment advisers can expect a knock on the door from Securities and Exchange Commission (SEC) inspectors in 2014, said Andrew Bowden, director of the agency’s Office of Compliance Inspections and Examinations (OCIE), according to a report by InvestmentNews.

“We're going to take a swipe at that population next year,” Bowden reportedly said at an industry conference on Thursday. “The probability that you will be examined next year probably is greater than it was this year or in prior years.”
The SEC was not available for comment by press time.

The SEC currently has around 11,000 registered investment advisers under its purview. Roughly 4,000 of these advisors have yet to face an exam, according to SEC estimates. Private fund advisers make up about 40 percent of all registered investment advisers, which according to Bowden’s speech, means the SEC aims to inspect roughly 800 private fund advisors next year.

Private fund advisors managing north of $150 million in assets entered the SEC’s oversight last March as part of the Dodd-Frank financial reform bill.

Bowden’s remarks follow similar comments made by Jane Jarcho, another senior figure in the OCIE. As part of its examination strategy, the SEC aims to inspect 25 percent of the roughly 1,500 newly registered private fund advisors, Jarcho said in a recent interview with PE Manager.

Bowden also emphasized that the SEC’s approach is geared toward preventing compliance failures as opposed to surprising advisers with enforcement actions. “Part of our mission is to promote compliance — we're not engaged in a game of gotcha.”

The SEC has however demonstrated a recent willingness to bring sanctions against firms. Last month, PEM reported that three investment advisers were ordered to settle charges of repeatedly failing to address compliance gaps the SEC flagged in earlier exams.