May 18, 2023

SEC Risk Alert Emphasizes Need for Newly‑Registered Advisers to Hit the Ground Running With Their Compliance Programs

On March 27, 2023, the SEC’s Division of Examinations (Division) issued a risk alert on its observations from examinations of newly-registered advisers (Risk Alert). Although newly-registered advisers have been included in the Division’s examination priorities for the past several years, the Risk Alert is a useful resource for new advisers to reference as they prepare for SEC scrutiny. The Risk Alert offers typical examination focus areas and staff observations in three key areas: compliance policies and procedures; disclosures; and marketing practices. Beyond that, the Risk Alert is also unique in that it includes a list of typical information requests by the SEC in examinations and a table of resources the Commission has made available to fund managers. This article discusses key takeaways and insights from industry experts regarding the Risk Alert, including how it contextually fits among the SEC’s broader efforts. For coverage of another recent SEC risk alert, see our two-part series: “Takeaways in the Risk Alert on Performance Advertising, Hedge Clauses and Side Letter Management” (Mar. 22, 2022); and “Lessons From the SEC Risk Alert on Avoiding Disclosure Compliance Failures and Enhancing Diligence Efforts” (Mar. 29, 2022).

How PE Firms Can Prepare for the DOJ’s Section 8 Crackdown on Interlocking Directorates Across Portfolio Companies

There is a renewed push by the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) to enforce Section 8 of the Clayton Antitrust Act of 1914 (Clayton Act). Specifically, the concern targeted by the DOJ is the existence of interlocking directorates where the same individuals serve on the boards of multiple companies competing in the same industry or market, resulting in unlawful information sharing and coordination. The DOJ’s efforts should spur the CCOs and GCs of PE firms to take a proactive approach to preventing challenges to board selections for their portfolio companies. In a guest article, Hanna Gorelick (principal), Samantha Salkin (principal) and Vic Rotolo (manager) in the risk, investigations & analytics practice at Charles River Associates detail the operative elements of Section 8 of the Clayton Act; recent DOJ and FTC enforcement efforts against violators; ways PE sponsors are uniquely susceptible to those risks; key factors for the agencies to find an unlawful interlock; and steps PE firms can take to mitigate those risks. See our three-part series on sponsor-appointed directors of portfolio company boards: “Conflicted Transactions, MNPI and Other Risk Areas” (Aug. 4, 2020); “Best Practices to Mitigate Risk in Multiple Scenarios” (Aug. 11, 2020); and “Common Risk Scenarios Triggering Conflicts and Fiduciary Breaches” (Aug. 25, 2020).

Key Issues When Establishing and Marketing Funds in Dubai and Abu Dhabi

The United Arab Emirates (UAE) is a high-quality financial center and tax-favorable jurisdiction with political stability and a good legal system that is based on the U.K. model. Several large fund managers have recently set up offices in the Middle East, which has strengthened the credibility of the jurisdiction and encouraged smaller managers to make the move. The UAE’s positive attributes are even more attractive as other jurisdictions around the globe are faced with political uncertainty and less favorable tax laws. To address some of the key issues for the growing number of fund managers interested in establishing a presence in Dubai or Abu Dhabi for investment management and capital raising purposes, Dechert hosted a webinar moderated by partner Craig Borthwick and which featured Christopher Gardner (partner), Phillip Sacks (partner) and Dounia Mansour (counsel). The program discussed important considerations when setting up a presence in the main jurisdictions, rules for marketing to UAE investors and features of local fund products. For further insights from Dechert attorneys, see “Key Investor, Regulatory and Industry Trends Identified in Dechert and Mergermarket’s 2022 Global PE Outlook” (Dec. 7, 2021).

Deep Dive on Compliance Issues Targeted in SEC Examinations and the Agency’s Stance on CCO Accountability (Part Two of Two)

Although the SEC has never wavered from its core priority of protecting investors, the winds shift frequently as to the different compliance issues the Commission prioritizes and focuses on in examinations. To identify some of the latest topics pursued and strategies adopted by the SEC, the Investment Company Institute hosted a panel at its 2023 Investment Management Conference that was moderated by Christopher Michailoff, senior counsel at TD Securities USA LLC, which featured Andrew Dean and Corey Schuster, Co‑Chiefs of the SEC Division of Enforcement’s (Enforcement) Asset Management Unit (AMU); Vanessa L. Horton, Associate Regional Director of the SEC’s Division of Examinations; and Dabney O’Riordan, partner at Quinn Emanuel. This second article in a two-part series recounts the SEC’s stance on CCO and GC accountability, and also identifies certain substantive areas of focus for the Commission (e.g., implementing the new marketing rule and safekeeping of off-channel communications). The first article detailed the AMU’s priorities and how it determines penalties; offered insights on the examination process; identified criteria for referring cases to Enforcement and how managers can mitigate that possibility; and considered the value for fund managers of self-reporting, self-remediation and cooperation. See our two-part series reviewing the SEC’s 2022 fiscal year enforcement efforts: “A Year of Compliance Sanctions and Warnings for Fund Managers” (Jan. 12, 2023); and “Lessons When Preparing for 2023 and Exam Trends to Monitor” (Jan. 26, 2023).

How to Navigate the Rough Waters and Turning Tides of U.S. States’ Anti‑ESG Movement and Europe’s Pro‑ESG Measures (Part Two of Two)

Fund managers that market and operate private funds across the globe are accustomed to navigating the disparate marketing and compliance regulations of different countries. That experience is proving invaluable for managers with funds that focus on environmental, social and governance (ESG) investing given the complex dynamics in the U.S. amidst the rising anti-ESG movement promulgated by conservative states and the decidedly favorable attitudes toward ESG investing in Europe. The difficulties of parsing those differences were addressed in a recent webinar hosted by Finpublica that featured Adam J. Wasserman, executive director of Finpublica and managing member of August Way Law & Consulting; Morgan Lewis partner Lance C. Dial; Wilson Sonsini partner Jindrich Kloub; and Sheppard Mullin counsel Raymond Marshall. This second article in a two-part series evaluates the anti-ESG movement among U.S. states that is occurring via regulatory measures and state attorneys general (AG) letters; details the contrasting approach to ESG antitrust concerns in the U.S. and E.U.; and suggests risk mitigation techniques that fund managers can adopt. The first article examined the national ESG regulatory efforts in the U.S. and Europe; specific ESG enforcement matters in the U.S., select European countries and Australia; and how European investors are pursuing private litigation to shape ESG efforts in the region. For additional insights from Dial, see our two-part series on the SEC’s proposed ESG rules: “Nuanced Concerns About Three ESG Categories and Other Form ADV Requirements” (Aug. 23, 2022); and “Forecasting the Private Fund Industry’s Response and Offering Compliance Tips” (Aug. 30, 2022).

Bryan Cave Adds a New Head of Its Fund Formation Group

Robert M. Crea has joined Bryan Cave Leighton Paisner as its U.S. head of fund formation and a partner in the corporate & finance transactions department in its San Francisco office. He regularly counsels investment advisers, private fund managers, broker-dealers, pension plans and other institutional investors on fund formations, product structuring, regulations, compliance issues, performance presentations and securities law matters. See “Takeaways in the SEC Risk Alert on Performance Advertising, Hedge Clauses and Side Letter Management (Part One of Two)” (Mar. 22, 2022); and “Thirteen Questions an Adviser’s Principals Should Ask Compliance (Part One of Two)” (Mar. 29, 2022).