Record-keeping regiment

Looming SEC registration means fund managers need to get their books in order in case regulators come knocking – and prepare for a little more public scrutiny.

The reason July 21 is circled on many fund managers’ calendars, of course, is because that’s the date by which private equity firms with $150 million or more in assets must register as investment advisors with the Securities and Exchange Commission. And that goes for some non-US GPs, too: foreign private equity firms with more than 15 US-based LPs, at least one office in the US and more than $25 million in combined US investor assets will have to register, too.

As the deadline nears, fund managers’ back offices will be humming as they get paperwork in order. Corporate records, compliance records, portfolio management documents, client records and proxy voting materials must all be ready for inspection. GPs must also have consistent, written policies and procedures to document ongoing business practices and operations.

Perhaps the most important of the required records is “Form ADV”, which consists of two parts. Part 1 contains basic information about the advisor, including its business focus, affiliations and assets under management. Part 2 discloses more detailed information about the advisor, its potential conflicts, its business practices and the background of its key executive officers.

And Part 2, once filed, will be available on the SEC’s website. That means not only will the SEC examiners be able to more closely scrutinise the industry, but the general public will, too.