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Alternative Market Briefing

SEC issues a risk alert on due diligence processes for selecting alternative investments

Wednesday, January 29, 2014

Bailey McCann, Opalesque New York:

The Securities and Exchange Commission (SEC) has released a new risk alert on the due diligence processes that investment advisers use when they recommend or place clients’ assets in alternative investments such as hedge funds, private equity funds, or funds of private funds. The alert describes current industry trends and practices in advisers’ due diligence, reflecting some recent changes in compliance and disclosure requirements that may still be new to investors.

Specifically, the SEC notes that advisers are seeking more information and data directly from the managers of alternative investment firms themselves. In addition the use of third parties to validate information that comes directly from managers is also growing. Opalesque has previously reported on the growth of independent operational due diligence as its own cottage industry within alternative investments.

Despite this growth, there are still some red flags that investors from their own advisers that may well indicate that they aren't acting in investors' best interests. Those include omitting alternative investment due diligence policies and procedures from their annual reviews, even though these investmen......................

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