Exclusive: SEC forms squad to examine private funds - sources

Mon Apr 7, 2014 6:53am EDT
 
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By Greg Roumeliotis and Sarah N. Lynch

NEW YORK/WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission (SEC) has put together a dedicated group to examine private equity and hedge funds, after the 2010 Dodd-Frank law required the funds to be regulated, according to people familiar with the matter.

The examiners will look at areas including how private equity and hedge funds value their assets, disclose their fees, and communicate with investors.

The SEC regularly examines a wide range of financial institutions including brokerages and clearing houses to ensure compliance with federal securities laws. But the regulator's exams have been criticized for missing big violations such as the Ponzi scheme at Bernard Madoff's asset management arm.

The agency has responded by adding more specialist examiners, covering areas ranging from financial markets to derivatives, and coordinating among examiners nationally.

The SEC already has examiners who specialize in funds, but historically the agency has focused on public asset managers such as mutual funds that have been highly regulated since 1940.

Dodd-Frank required most midsize and large private equity and hedge funds to register with the SEC. Many hedge funds and private equity firms hold complex and illiquid investments that are harder to value than those at traditional asset managers. This has spurred the need for specialist SEC examiners.

Also, these funds can have complex fee structures that are harder for investors to understand. Ensuring transparency in these funds is a top SEC priority.

The SEC has asked Congress for more resources for fund inspections. SEC Chair Mary Jo White told a U.S. House of Representatives appropriations panel last week that the regulator examined only about 9 percent of registered investment fund advisers in the last fiscal year.   Continued...

 
A general exterior view of the U.S. Securities and Exchange Commission (SEC) headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst