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Alternative Market Briefing

SEC to require "presence exams" for new investment advisers

Wednesday, October 10, 2012

Bailey McCann, Opalesque New York: The Securities and Exchange Commission (SEC) is sending a letter to new investment advisors telling them they will now be required to take a "presence exam," as part of its new National Exam Program (NEP). The exams will be conducted by the Office of Compliance Inspections and Examinations (OCIE) to ensure that registered advisers, including firms that advise private funds are operating in a manner consistent with federal securities laws.

The regulator says that the examinations will be "risk based," and will have three phases - engagement, examination and reporting. Exams will take place for newly registered advisers over the next two years. According to a client alert from US-based law firm Schulte, Roth & Zabel, the NEP staff will contact advisers separately if and when their firm is selected for an examination.

Exams are expected to touch on five areas: marketing; portfolio management; conflicts of interest; safety of client assets, and valuation. "Fund managers should be prepared to address these issues in detail with the SEC staff, for example, by explaining their procedures, disclosures and testing with respect to allocation of investment opportunities and allocation of expenses among funds and other accounts. Supporting......................

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