What Are the Implications of the SEC’s New Private Fund Exam Unit

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Greg Roumeliotis and Sarah N. Lynch are reporting in Reuters that the Securities and Exchange Commission has formed a new group dedicated to the exam of private equity and hedge funds. This new private fund unit will be co-chaired by Igor Rozenblit and Marc Wyatt. Rozenblit is coming from the asset management unit of the SEC’s enforcement division and is a former private equity professional. Wyatt joined the SEC in 2012 as a private funds examiner and formerly worked for hedge funds.

Based on the private fund managers I have spoken with that have been subject to a SEC exam, nearly all have found that the examiners knew little about private equity, real estate, or more exotic hedge funds. Examiners’ knowledge seems mostly limited to retail investment advisers, mutual fund advisers, and basic hedge funds.

I assume the new unit will be largely focused on education. I’ve heard Rozenblit speak and he certainly understands how private equity works and where enforcement should focus. I think he will offer great insight for examiners.

Assuming this story is true, I expect there will be significant changes to the exam process for private fund managers. The document request letters have often been a poor fit for private equity funds. Some even show a complete misunderstanding of how a private equity fund operates. That leads to lots of time wasted by examiners and fund managers subject to examination.

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