Over the last decade, the SEC has peeled off layers of PE industry complexity. In its enforcement actions and examinations, and through risk alerts and its annual examination priorities, the SEC has identified regulatory risks inherent to prevalent industry practices and provided guidance on increasingly intricate topics for regulatory scrutiny. For PE sponsors, however, it is insufficient to keep pace with risk areas identified in past or current SEC actions; they must also anticipate topics that may move onto the SEC’s radar in the future. In a guest article, Vinson & Elkins partner Robert Seber explores two topics that are likely to be the subject of future SEC scrutiny: waterfall calculations and investment decisions. Specifically, the article highlights common risks as to how fund managers apply impairment criteria in their carry waterfalls, calculate their funds’ preferred returns and may inadvertently violate their fiduciary duties when making investment decisions. For additional insights from Seber, see “Avoiding a Midlife Crisis: Flaws With Fund Terms After the Commitment Period and How to Improve Them” (Jan. 12, 2021); and “LPAC by Design: Six Recommendations for GPs to Define LPAC Features During Fund Formation” (Feb. 25, 2020).