SEC Enforcement and Exams Likely to Focus More on Private Funds in the New Administration
For the next several weeks and months, intense focus will be trained on determining the priorities of the Biden administration. We believe that at the Securities and Exchange Commission (“SEC”), the new administration will ramp up examinations and investigations of investment advisers, and specifically advisers to private funds.
The industry has certainly been in growth mode. By the SEC’s own calculations, the number of private funds increased by nearly one third during the past four years (from 26,840 funds in the first quarter of 2016 to 34,858 in the first quarter of 2020), and the aggregate net asset value increased likewise (from $6.9 trillion in the first quarter of 2016 to $9.5 trillion in the first quarter of 2020).
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On January 6, 2021, the Division of Examinations (“Division”) issued a Risk Alert to notify investment advisers, broker-dealers, and other market participants of a recent action relating to investments in securities associated with Communist Chinese military companies, as well as investors transacting in such securities.
Why We are Sending this Alert: Investment advisers, broker-dealers, and other market participants should know that effective as of January 11, 2021 at 9:30 a.m. EST, U.S. persons, which includes both individuals and entities, are prohibited from transacting in certain securities and derivatives of Communist China military companies (“CCMCs”), unless such transactions are for purposes of divestment and occur through November 11, 2021.
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