investment adviser compliance and reporting:...
TRANSCRIPT
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Presenting a live 90-minute webinar with interactive Q&A
Investment Adviser Compliance and
Reporting: Latest Developments
and OCIE Exam Hot Buttons Navigating Form ADV Amendments and Preparing for OCIE
Examination Priorities, Including New Scrutiny on ERAs
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
WEDNESDAY, FEBRUARY 17, 2016
Cary J. Meer, Partner, K&L Gates, Washington, D.C.
Beth Clark, Of Counsel, K&L Gates, Washington, D.C.
Alan K. Halfenger, Partner, ACA Compliance Group, Boston
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Cary J. Meer
K&L Gates LLP, Washington, DC
and New York City
202.778.9107
Investment Adviser Compliance
and Reporting: Latest Developments
and OCIE Exam Hot Buttons
February 17, 2016
DC 9964926 v.5
Beth Clark
K&L Gates LLP, Washington, DC
202.778.9432
Alan Halfenger
ACA Compliance Group, Boston
617.589.0904
CURRENT OCIE HOT BUTTONS FOR
REGISTERED INVESTMENT ADVISERS
AND EXEMPT REPORTING ADVISERS
Examination Trends:
From OCIE’s Mouth to Your Ears “We collect information on everyone. We analyze
information on everyone. I think people assume, if they’re
not the 9%, the other 91% are out there doing things off the
radar screen. But the SEC has gotten very proficient
through hiring and staffing and resourcing of financial
engineers…”
Drew Bowden, Former Director, OCIE
Source: Exams Not the Only Scrutiny, OCIE Official Warns, Compliance Reporter, October 31, 2012
7
Examination Trends
Source: U.S. Securities and Exchange Commission, SEC Fiscal Year 2014 Agency Financial Report,
November 17, 2014
11,438 advisers 2,693 ERAs 16,000 mutual funds 37,000 private funds
8
Examination Trends: Cycle
Source: U.S. Securities and Exchange Commission, FY 2014 Annual Performance Report, February 2, 2015
“…although the staff
examined 10 percent
of investment advisers
in FY 2014, these
advisers represented
more than 30 percent
of the overall assets
under management.”
9
Examination Trends: Observations 45% of respondents have undergone an SEC Exam
50% of private equity managers that registered as a
result of Dodd-Frank have had an SEC Exam
28% of hedge fund managers that registered as a result
of Dodd-Frank have had an SEC Exam
Source: 2015 Alternative Fund Manager Compliance Survey, ACA Compliance Group,
August 2015
10
Examination Trends: Results
2010 2011 2012 2013 2014
Percentage that identifies
deficiencies
72% 82% 80% 80% 76%
Percentage with
“significant finding”1 42% 42% 42% 35% 30%
Percentage referred to
Enforcement 13% 12%
Source: SEC’s FY 2016 Congressional Budget Justification
1 A “significant finding” is one that may cause harm to customers or clients of a firm, have a high potential to cause harm,
or reflect recidivist misconduct
11
Examination Trends: Significant Findings
Examiners find a wide range of
deficiencies during examinations.
Some of the deficiencies are
more technical in nature, such as
failing to include all information
that is required to be in a record.
However, other deficiencies may
cause harm to customers or
clients of a firm, have a high
potential to cause harm, or reflect
recidivist misconduct. The latter
deficiencies are among those
categorized as “significant.”
Source: U.S. Securities and Exchange Commission, FY 2014 Annual Performance Report, February 2, 2015
~ 30% of exams result
in significant findings
12
SEC Examination Priorities OCIE’s 2016 focus on three thematic areas:
Retail Investors
Assessing Marketwide Risks
Use of Data Analytics to identify signs of potential illegal
activity
Thematic areas are identical to 2015
13
Examination Priorities – Retail Investors 2016
ReTIRE Initiative
Exchange-Traded Funds’
compliance with exemptive
relief, sales strategies, trading
practices, etc.
Supervision of branch office staff
Fee selection and reverse
churning
Variable annuity sales
suitability
Public pension advisers and
potential conflicts of interest
2015
Fee selection and reverse
churning
Sales practices used with regard
to the movement and
supervision of retirement assets
Suitability of recommendations
to invest retirement assets
Supervision of branch office staff
“Alternative” investment
companies
Fixed-income investment
companies
14
Examination Priorities – Marketwide Risks 2016
Cybersecurity
Regulation Systems
Compliance and Integrity
entities’ policies and
procedures
Liquidity controls of mutual
funds, ETFs, and private
funds with exposure to illiquid
fixed-income securities
Annual examinations of all
systematically important clearing
agencies
2015
Monitoring the largest U.S.
broker-dealers and asset
managers to assess individual
firm risks and maintain early
awareness of developments
industrywide
Annual examinations of all
systematically important clearing
agencies
Cybersecurity
Potential equity order routing
conflicts
15
Examination Priorities – Data Analytics 2016
Identify individuals with a track record of misconduct and examine the firms that employ them
Pump-and-dump schemes or market manipulation of microcap stocks
Identify and examine introducing brokers and registered representatives that appear to be engaged in excessive trading
Broker-dealer anti-money laundering programs
Suitability issues and breaches of fiduciary obligations in promotion of new, complex, and high-risk products
2015
Identify individuals with a track record of misconduct and examine the firms that employ them
Pump-and-dump schemes or market manipulation of microcap stocks
Identify and examine introducing brokers and registered representatives that appear to be engaged in excessive trading
Broker-dealer anti-money laundering programs
16
Examination Priorities – Other Initiatives 2016
Examinations of newly registered municipal advisors
Private placement due diligence, disclosure, and suitability
Never-before-examined investment advisers and investment companies
Private fund adviser fees and expenses and side-by-side management practices
Transfer agents’ safeguarding of securityholder funds
Reviews of exempt reporting advisers
2015
Examinations of newly
registered municipal advisors
Examinations of proxy advisory
service firms
Never-before-examined
investment companies
Private equity fees and
expenses
Examinations of transfer agents,
especially those involved with
microcap securities and private
offerings
17
OVERVIEW OF KEY 2015 INVESTMENT
ADVISER ENFORCEMENT CASES
Chair White on Enforcement
“Vigorous and comprehensive enforcement
protects investors and reassures them that our
financial markets operate with integrity and
transparency, and the Commission continues that
enforcement approach by bringing innovative
cases holding executives and companies
accountable for their wrongdoing sending clear
warnings to would-be violators.”
Source: SEC Announces Enforcement Results for FY 2015, SEC Press Release, 2015-245 (October 22, 2015)
19
Enforcement Update: Results Fiscal Year 2015
807 enforcement actions
507 for violations of Federal
Securities Laws
300 were either against
issuers who were delinquent
in making required filings with
the SEC or administrative
proceedings seeking bars
against individuals based on
criminal convictions, civil
junctions, or other orders
Approximately $4.2 billion in
disgorgement and penalties
Fiscal Year 2014
755 enforcement actions
413 for violations of Federal
Securities Laws
342 were either against
issuers who were delinquent
in making required filings with
the SEC or administrative
proceedings seeking bars
against individuals based on
criminal convictions, civil
junctions, or other orders
$4.16 billion in disgorgement and
penalties
20
Enforcement Update: Results (continued)
FY15 First-ever cases involving:
Private equity adviser for misallocating broken-deal expenses
Failure to report a material compliance matter to a fund board
Distribution-in-guise
FCPA action against a financial institution
SEC rule prohibiting the use of confidentiality agreements to
impede whistleblower communication with the SEC
FY14 First-ever pay-to-play case
21
Enforcement Update: Penalties
Source: The Wall Street Journal
22
, ,
Enforcement Update: Asset Management Unit 2015 Priorities Advisers to Registered Investment Companies
Valuation
Performance advertising
Investment guideline compliance or undisclosed strategies
Fund governance
Fund distribution
Advisers to Separately Managed Accounts and/or Retail Accounts
Conflicts of interest
Fee arrangements
Compliance under Enforcement Division’s “Compliance Program Initiative”
Advisers to Hedge Funds and Private Funds
Conflicts of interest
Valuation
Compliance and controls
Undisclosed and misallocated fees and undisclosed conflicts
Performance advertising
All Advisers
Recidivism
Source: IA Watch 17th Annual IA Compliance Conference,
SEC Speech, Julie M. Riewe, Head of the AMU within the
Enforcement Division (February 26, 2015)
23
In re Blackstone Management Partners LLC
et al., Investment Advisers Act of 1940 (“IAA”)
Rel. No. 4219 (Oct. 7, 2015)
$39 million in disgorgement and civil money penalties
settlement by investment adviser to private equity
funds because (1) inadequate disclosure of
“accelerated monitoring fees” and (2) the adviser
negotiated fees for legal services for which the
adviser received a greater discount than did the funds
Key Takeaway: Full transparency of fees and conflicts of
interest is critical
Receipt of Unauthorized or Inadequately Disclosed Fees
24
In re Taberna Capital Management, LLC et al., Securities Exchange Act of 1934 (“SEA”) Rel. No. 75814 (Sept. 2, 2015)
Settlement involving the payment of $21 million in disgorgement and civil money penalties by adviser responsible for managing CDOs because the adviser received “exchange fees” that were not contractually authorized. The fees were inaccurately characterized as compensation for third-party costs
Key Takeaway: An adviser may only receive fees to which it is contractually entitled, and fees must be accurately characterized
Receipt of Unauthorized or Inadequately Disclosed Fees (continued)
25
In re First Eagle Investment Management LLC and FEF
Distributors LLC, IAA Rel. No. 4199 (Sept. 21, 2015)
In the first case brought under the SEC’s Distribution-in-guise Initiative
(focusing on whether advisers are being reimbursed for distribution
expenses in the guise of something else), an adviser to mutual funds
and its wholly owned broker-dealer, acting as fund distributor, agreed to
pay nearly $40 million to settle SEC charges that they unlawfully caused
their funds to pay nearly $25 million for distribution-related services.
Although the payments were characterized as payments for “sub-TA
services,” the SEC concluded that they were payments for distribution
expenses
Key Takeaway: Unless part of a 12b-1 plan, the adviser has to bear the
costs associated with marketing the funds
Use of Registered Fund Assets to Pay for Expenses the Adviser Should Have Borne
26
In re Kohlberg Kravis Roberts & Co., LP, IAA Rel.
No. 4131 (June 29, 2015)
In the first SEC case to charge a private equity adviser with
misallocating broken-deal expenses, a private equity firm that
specializes in buyouts and other transactions agreed to pay
$28.5 million because the funds had reimbursed a large portion
of broken-deal expenses, but other co-investors had not
contributed to those expenses
Key Takeaway: Funds should not be required to shoulder the cost for nearly
all of the expenses incurred to explore potential investment opportunities if
those opportunities also benefit co-investors who do not share those costs
Use of Registered Fund Assets to Pay for Expenses the Adviser Should Have Borne (continued)
27
In re Welhouse & Associates, Inc. and Mark P.
Welhouse, SEA Rel. No. 75319 (June 29, 2015)
In a case that relied heavily on the Commission’s data-driven
initiative to identify potentially fraudulent trade allocations, the
Commission charged that the sole owner of an adviser to 72
separately managed accounts purchased options in an omnibus
account and then delayed allocation of the purchases until he
saw whether the securities appreciated in value. The matter is in
litigation
Key Takeaway: The Commission’s data-driven initiative is highly focused on
aberrational trading
Improper Trade Allocations by Cherry-Picking Favorable Trades
28
In re Alphabridge Capital Management LLC et al.,
IAA Rel. No. 4135 (July 1, 2015)
In a case that settled for $5 million, the SEC charged an
adviser to hedge funds with using inflated, internally
derived valuations for unlisted, thinly traded residential
mortgage-backed securities, even though it claimed to be
using independent price quotes from broker-dealers. The
SEC charged that the adviser supplied its own prices for
broker-dealers to pass off as their own and scripted the
broker-dealers’ conversation with the auditor
Key Takeaway: The integrity of the portfolio valuation process is
critical, especially for illiquid securities. An adviser cannot claim to
use market-grounded prices if it is using something else
Overvaluation of Illiquid Assets
29
In re Lynn Tilton et al., IAA Rel. No. 4053
(Mar. 30, 2015)
In a valuation case that is being contested, the
Commission charged that an adviser to three CLO funds
with more than $2.5 billion in assets, much of which was
invested in distressed loans, valued nearly all the loan
assets at their price of acquisition even though many of the
borrowers had made only partial or no interest payments
Key Takeaway: The Commission will carefully scrutinize whether
valuations of illiquid assets are updated to reflect current conditions
Overvaluation of Illiquid Assets (continued)
30
In re Gray Financial Group, Inc. et al., Securities Act of
1933 (“SA”) Rel. No. 9789 (May 21, 2015)
In a case that is currently being litigated, the SEC charged that
an adviser that provided consulting services to pension and profit
sharing plans, endowments, and other entities steered its public
pension fund clients to invest in alternative investment fund
products that did not comply with state law investment
restrictions for public pension funds. The Commission charged
that the adviser knowingly violated its fiduciary duty
Key Takeaway: Advisers need to be particularly focused on state law
investment restrictions that may apply to public-entity clients
Violation of Public Clients’ Investment Restrictions
31
In her February 26, 2015, remarks to the 17th Annual Investment Advisers
Compliance Conference, Julie Riewe stated that, in nearly every matter in
the Asset Management Unit, the unit is exploring whether the adviser
discharged its fiduciary obligation to identify conflicts and (1) either eliminate
them or (2) mitigate them and disclose them to boards or investors. She
said, “Over and over again we see advisers failing to properly identify and
then address their conflicts”
In re Guggenheim Partners Investment Management LLC, IAA Rel. No. 4163
(Aug. 10, 2015) In an action alleging that an adviser to institutional clients, high-net-worth clients, and private
funds failed to disclose a $50 million loan that a senior executive of the adviser had received
from an advisory client, the adviser settled by paying a $20 million penalty. The Commission
alleged that the adviser did not disclose the loan to the compliance department or clients
Key Takeaway: Advisers must be vigilant in disclosing conflicts
Failure to Disclose Conflicts of Interest
32
In re BlackRock Advisors LLC and Bartholomew Battista,
IAA Rel. No. 4065 (Apr. 20, 2015)
In the first SEC case to charge a violation of Rule 38a-1 under the
Investment Company Act (requiring the disclosure of “each material
compliance matter” to the board), the Commission charged that an
adviser to registered funds, private funds, and separately managed
accounts should have disclosed to the registered fund’s board that one
of the adviser’s portfolio managers had founded a company that formed
a joint venture with a publicly owned company in which the fund had a
significant interest. The Commission also charged the chief compliance
officer with causing certain violations, which led to a dissent by
Commissioner Gallagher. The adviser paid $12 million to settle the
matter
Key Takeaway: Conflicts of interest created by outside business activities
must either be eliminated or be disclosed to the board and advisory clients
Failure to Disclose Conflicts of Interest (continued)
33
SEC v. Lee D. Weiss et al. (D. Mass., filed Sept. 29, 2015) In a case that is being litigated, the SEC charged that an adviser to individual
clients and hedge funds, without adequate disclosure of conflicts, caused clients to invest more than $40 million in companies in which the owner of the adviser had a significant interest
Key Takeaway: Material conflicts have to be eliminated or disclosed
In re Fenway Partners, LLC et al., IAA Rel. No. 4253 (Nov. 3, 2015) In a case that settled for $10.2 million, the SEC charged that an adviser to a
private equity fund, as well as four executives, steered portfolio company management fees to an affiliate without adequate disclosure or offsetting those fees against the advisory fee paid by the fund, and that employees of the adviser or an affiliate received $15 million from the proceeds of the sale of one of the portfolio companies
Key Takeaway: Private equity advisers have to be particularly vigilant when entering into arrangements with affiliates or when receiving payments from portfolio companies
Failure to Disclose Conflicts of Interest (continued)
34
The IAA Custody Rule (Rule 206(4)-2) requires that advisers who
have custody of client assets put in place a set of procedural
safeguards to prevent loss of those assets. The Commission
frequently brings enforcement actions for failure to comply with the
Custody Rule
In re Water Island Capital LLC, Investment Company Act of 1940
(“ICA”) Rel. No. 31455 (Feb. 12, 2015)
An investment adviser to mutual funds paid a $50,000 civil money penalty to
settle an action charging that the adviser failed to implement policies and
procedures to ensure that all cash collateral was held in the custody of the funds’
bank. Instead, for a nine-month period, cash collateral was held by broker-dealer
counterparties
Key Takeaway: Section 17(f)(5) of the ICA generally requires that if an
investment company maintains securities in the custody of a qualified bank,
the cash proceeds from the sale of those securities should also be kept in
the custody of the bank
Violation of the Custody Rule
35
In re Sands Brothers Asset Management LLC et al., IAA Rel.
No. 4273 (Nov. 19, 2015)
The Commission brought an action against an investment advisory firm to pooled investment vehicles, as well as against two owners and a former CCO, because the firm violated the Custody Rule after being reprimanded for violations a few years before. In particular, the firm took no action in response to a 2010 order requiring it, among other things, to submit to a surprise examination and distribute audited financials within the time periods imposed by the Custody Rule. The respondents agreed to pay a $1 million penalty and be suspended for a year from raising money from new or existing investors. The former CCO agreed to pay a $60,000 penalty and be suspended for one year from acting as a CCO or appearing or practicing before the SEC as an attorney
Key Takeaway: Recidivists can expect harsh treatment from the Commission
Violation of the Custody Rule (continued)
36
In re UBS Willow Management LLC et al., SA Rel. 9964
(Oct. 19, 2015)
The Commission charged that the adviser to a fund changed
strategy from a long-credit investment strategy (investing in
distressed debt) to a short-credit investment strategy (investing
in credit default swaps) without updating the fund’s offering
memorandum to reflect the change. The adviser agreed to settle
by paying $20.5 million in disgorgement, compensation, and civil
money penalties
Key Takeaway: Advisers must provide investors and boards with accurate
information about a fund’s investment strategy
Misrepresentation of Investment Strategy
37
In re Virtus Investment Advisers, Inc., IAA Rel. No. 4266
(Nov. 16, 2015)
An adviser to mutual funds agreed to pay $16.5 million to settle charges
that it misled mutual fund investors and others regarding the
performance of its “AlphaSector rotation strategy” by stating that the
strategy had been used since April 2001 and that its track record had
significantly outperformed the S&P 500 Index from April 2001 to
September 2008. In addition, the sub-adviser inflated the historical
performance of the strategy by incorrectly implementing signals in
advance of when such signals actually could have occurred
Key Takeaway: Advisers need to take steps to verify claims of the
subadviser before they incorporate those claims into their advertising
materials
Misrepresentations Regarding a Fund’s Performance
38
In re Arthur F. Jacob, CPA and Innovative Business
Solutions, SEA Rel. No. 76079 (Oct. 5, 2015)
In addition to charging a number of other violations, the SEC
charged that an adviser to 30 client households misrepresented
to clients that his trading strategy was safe, involved little or no
risk, and produced guaranteed, predictable profits. The
Commission charged that, contrary to these representations, the
investments included inverse exchange-traded funds and other
securities known to be speculative and highly volatile. The
matter is in litigation
Key Takeaway: Advisers cannot understate the risks of their investment
strategy
Misrepresentations Regarding Investment Risks
39
Rule 30(a) of Regulation S-P requires every registered investment adviser
(and others) to adopt policies and procedures reasonably designed to
ensure the security and confidentiality of customer records, protect against
any anticipated threats or hazards to such records and information, and
protect against unauthorized access to or use of customer records or
information
In re R.T. Jones Capital Equities Management, Inc., IAA Rel. No. 4204
(Sept. 22, 2015) The Commission fined an adviser with separately managed accounts $75,000 for failing to
establish required policies and procedures in advance of a cybersecurity breach
Key Takeaway: With the increasing barrage of cyberattacks on financial firms, firms
must be vigilant in adopting and implementing policies and procedures to protect clients’
information from such attacks
Failure to Adopt and Implement Adequate Cybersecurity Policies and Procedures
40
In re Pekin Singer Strauss Asset Management Inc. et al., IAA Rel. No. 4126 (June 23, 2015) The SEC charged that an investment adviser to high-net-worth clients and a fund
hired a CCO who had limited prior experience and training in compliance; the CEO at the time failed to provide the CCO with sufficient guidance regarding his duties and responsibilities and did not provide him with staff to assist with compliance; the CCO lacked experience, resources, and knowledge as to how to adopt and implement an effective compliance program; because of his other responsibilities, the CCO was only able to devote 10% ─ 20% of his time on compliance matters; he failed to complete timely annual compliance program reviews; he told the CEO that he needed help, but the CEO delayed in providing additional resources; and the lack of resources contributed to delays in completing compliance reviews
As part of the settlement, the Commission suspended the former CEO from association in a compliance and supervisory capacity for 12 months, ordered the firm to pay a civil money penalty of $150,000, and ordered the former CEO to pay a fine of $45,000
Inadequate Compliance Procedures or Resources
41
In re Wolverine Trading LLC and Wolverine Asset Management LLC, SEA Rel. No. 76109 (Oct. 8, 2015)
The Commission charged that an investment adviser who provided discretionary investment services to high-net-worth clients violated Section 204A of the Investment Advisers Act, which requires policies and procedures reasonably designed to prevent the misuse of material nonpublic information, but did not charge an independent insider trading violation. In that case, an adviser and its affiliated broker-dealer shared information despite information barrier procedures that were intended to ensure that they conduct business as separate and distinct organizations
Key Takeaway: Procedures must not only be established; they must also be vigorously maintained and enforced
Inadequate Compliance Procedures or Resources (continued)
42
CASES AGAINST CHIEF
COMPLIANCE OFFICERS
IAA Rule 206(4)-7 requires investment advisers to adopt and
implement written policies and procedures reasonably designed to
prevent violations of the Act and to appoint a chief compliance
officer responsible for “administering” the policies and procedures
In re BlackRock Advisors, LLC, IAA Rel. No. 4065 (Apr. 20, 2015):
Charged CCO with causing compliance-related violations related to outside
business activities because he allegedly “knew or should have known” that the
violations were not reported to the funds’ boards in violation of Rule 38a-
1(a)(4)(iii)(B)
The order states that, as CCO, he was “responsible for the design and
implementation of [the firm’s] written policies and procedures,” and “did not
recommend written policies and procedures to assess and monitor [certain]
outside activities and to disclose conflicts of interest to the funds’ boards and to
advisory clients”
The CCO was fined $60,000 and ordered to cease and desist from violating IAA
206(4), Rule 206(4)-7, and ICA Rule 38a-1
44
CCO Cases
In re SFX Financial Advisory Management Enterprises, Inc., IAA Rel. No. 4116 (June 15, 2015) In a case involving misappropriation of client assets, the Commission charged
that the CCO failed to “effectively implement” a compliance policy requirement to review “cash flows in client accounts” and thereby “caused” the firm’s violation of IAA Sections 206(4) and 206(4)-7
The compliance officer paid a fine of $25,000 and was ordered to cease and desist from violations of IAA Sections 206(4) and 207 and Rule 206(4)-7
On June 18, 2015, Commissioner Gallagher issued a statement on why he dissented from those two decisions. He stated that CCOs are responsible for “administering” compliance policies and procedures but that responsibility for “implementation” rests with the adviser itself
On June 29, 2015, Commissioner Aguilar responded, stating that CCOs who do their jobs “competently, diligently, and in good faith” should not fear the SEC. He stated that between 2009 and 2014, the number of IAA cases brought against CCOs ranged from 6%─19%
45
CCO Cases (continued)
On Oct. 24, 2015, Andrew (“Buddy”) Donohue, Chair White’s Chief
of Staff, addressed the liability of chief compliance officers
He repeated that the Commission is not “targeting” CCOs
He quoted earlier statements by Chair White that compliance officers who
perform their responsibilities “diligently” need not fear enforcement action
He stated that SEC actions against compliance officers tend to involve
compliance officers who:
Affirmatively participated in the underlying misconduct,
Helped mislead regulators, or
Had clear responsibility to implement compliance programs and “wholly
failed to carry out that responsibility”
Given the degree to which hindsight informs enforcement actions,
the fact that the SEC says it is not “targeting” CCOs or charging
CCOs who performed their responsibilities “diligently” may provide
cold comfort
46
CCO Cases (continued)
PROPOSED REVISIONS TO FORM ADV
SEC Proposal for Revisions to Form ADV Proposed May 20, 2015
Collection of Information on Separately Managed Accounts (“SMAs”)
Applies to nonpooled investment vehicles
Would need to report annually (or annually with semi-annual data for
registered investment advisers (“RIAs”) with at least $10 billion of
regulatory assets under management (“RAUM”) attributable to
SMAs):
Percentage of RAUM attributable to SMAs in 10 broad asset categories
(exchange-traded equities, U.S. government/agency bonds)
Percentage of SMA assets invested in derivatives (increased reporting for
advisers with $10 billion or more of RAUM)
Identify custodians that account for at least 10% of RAUM attributable to SMAs
and identify amount of RAUM at each custodian
48
Information Regarding an Adviser’s Business and Affiliations
Includes:
Disclose website addresses for social media platforms
Total number of advisory offices and information about the 25 largest offices
Whether CCO is employed by or compensated by someone other than the adviser (or a related person)
If report RAUM differently in Part 2A than in Part 1A, would be required to check a box
Percentage of RAUM attributable to non-U.S. clients
Report RAUM of all “parallel managed accounts”
Additional information regarding sponsors of wrap fee programs
Require adviser to report percentage of private fund assets owned by qualified clients
SEC Proposal for Revisions to Form ADV (continued)
49
Umbrella Registration (2012 ABA No-Action
Letter):
Proposal includes changes to Form ADV to clarify
which questions must be answered by the “filing
adviser” and which questions must be answered by
“relying advisers”
Reporting must be consistent with reporting on
Form PF
SEC Proposal for Revisions to Form ADV (continued)
50
51
Ms. Meer has been structuring private funds as limited
liability companies, limited partnerships, offshore
corporations, common trust funds and business trusts, and
preparing disclosure documents and organizational
documents for such entities since the mid-1990s. Her
clients include hedge fund and private equity fund sponsors,
as well as sponsors of funds-of-funds and funds-of-one.
Some of these manager are stand-alone entities and some
are part of large financial institutions. She also advises
investment advisers, private fund managers, and investment
companies on compliance issues, including under the
Investment Advisers Act of 1940 and whether their
commodity interest-related trading or advice would require
them to register as commodity pool operators or commodity
trading advisors. She also advises institutional investors in
connection with their investment in third-party private funds.
Cary J. Meer, Partner
K&L Gates, Washington, D.C.
and New York City
202.778.9107
52
Ms. Clark concentrates her practice in the investment
management and securities areas, where she advises
participants in the financial services industry. In particular,
she focuses on creating and counseling U.S. and non-U.S.
private funds, including hedge funds, private equity funds,
and venture capital funds. She structures U.S. funds as
limited liability companies, limited partnerships, and trusts
and establishes “offshore” funds. She prepares and
negotiates the necessary documentation associated with
private securities offerings, including disclosure and
organizational documents, service provider agreements, and
filings and registrations. She advises as to obligations under
federal securities laws, state laws and rules, and self-
regulatory organization rules.
Beth Clark, Of Counsel
K&L Gates, Washington, D.C.
202.778.9432
53
Mr. Halfenger has over 20 years of global compliance
experience. Prior to joining his current firm he served as
Global Chief Compliance Officer at Bain Capital in Boston.
Previously, he held roles as a senior compliance officer and
counsel at prominent hedge fund managers, private banks,
and brokerage and investment banking firms.
Alan K. Halfenger, Partner,
ACA Compliance Group, Boston
617.589.0904