SEC publishes due diligence Risk Alert

Operational Risk
29 Jan, 2014

The Securities and Exchange Commission (SEC) has issued a Risk Alert urging investment advisers to bolster their due diligence processes on alternative investment vehicles.

The SEC’s Office of Compliance Inspections and Examinations (OCIE) noted some firms were not adequately reviewing their investment due diligence policies and procedures on an annual basis despite alternative investments comprising substantial chunks of their portfolios.

It added some firms were providing clients with potentially misleading information in their marketing materials about the scope and depth of the due diligence they performed.  

However, there have been improvements in some areas. The OICE alert said advisers were demanding more information from alternative investment managers, while some were using external parties to validate the information provided. Others were praised for performing additional quantitative analysis and risk assessments on their investments.

“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 Drew Bowden, director at the OCIE.  



SECRisk Alert