SEC Issues Risk Alert on Investment Advisers´ Due Diligence Processes for Selecting Alternative Investments

FOR IMMEDIATE RELEASE
2014-14

Washington D.C., Jan. 28, 2014 — The Securities and Exchange Commission´s Office of Compliance Inspections and Examinations (OCIE) today issued a Risk Alert on the due diligence processes that investment advisers use when they recommend or place clients´ assets in alternative investments such as hedge funds, private equity funds, or funds of private funds.  

"Money continues to flow into alternative investments.  We thought it was important to assess advisers´ due diligence processes and to promote compliance with existing legal requirements, including the duty to ensure that such investments or recommendations are consistent with client objectives," said OCIE Director Drew Bowden.  

The alert describes current industry trends and practices in advisers´ due diligence. Compared to observations from prior periods, the staff noted that advisers are:

Additionally, staff observed certain deficiencies in several of the advisory firms examined, including:

The following OCIE staff contributed to this Risk Alert:  John Sweeney, Kenneth Clowers, Zerubbabel Johnson, and Mavis Kelly.