Regulatory Compliance Watch | In-person Exams Resume

Mar 2023

Originally posted by Regulatory Compliance Watch on March 3, 2023.

The SEC plans to increase its on-site interactions with regulated entities but will continue to conduct remote examinations when applicable. Exams are costly as fund advisers typically retain lawyers, spend employee time on document requests or interviews and sometimes even return funds to investors based on errors the SEC uncovers.

While compliance is expensive, it tends to become more costly in turbulent markets. As funds become limited, investors get noisier and regulators examine financial entities more closely. However, there is a market advantage involved in compliance. Regardless of what regulators settle on for private fund reform, investors have already decided that they want more transparency.

Richard Olson, Managing Director in Lincoln’s Valuations & Opinions Group, commented, “There’s a tiering that’s appeared in 2022 fundraising. The data shows that larger asset managers have dominated fundraising last year, while the smaller asset managers have not had the same level of success. How are the big guys winning the fundraising game? One of the primary reasons they are winning is because they’re able to deliver what limited partners want, and that is great transparency about the valuations of their underlying investments. Investors want to know their investments have been marked fairly and independently, and not just on the basis of the manager’s views.”

Firms that have the funds to spend on compliance come out ahead as they can fend off or absorb enforcement actions and market their compliance efforts over competitors.

Additional insights are included in the original article.