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    Dec. 5, 2024

SEC 2025 Exam Priorities Stress Core Fiduciary Duties and Effective Compliance Programs

The SEC Division of Examinations (Division) – established as the Office of Compliance Inspections and Examinations (OCIE) – is approaching its 30th anniversary. During that time, it has grown from about 500 staff members across three programs to more than 1,100 staff members across five programs, noted Division leadership in a message accompanying the Division’s 2025 Examination Priorities (Priorities). Since 2013 and as part of the Division’s continuing commitment to transparency, it has published annual examination priorities, highlighting the areas it believes to present the highest risks to investors and the markets. A key focus of the Priorities is adherence by investment advisers to fiduciary standards of conduct and the effectiveness of their compliance programs. This article discusses the portions of the Priorities most relevant to private fund advisers, with commentary from Carlo di Florio, president of ACA Group and former OCIE Director, and Kristin Snyder, partner at Debevoise & Plimpton and former Deputy Director of the Division and Head of its Investment Adviser/Investment Company Program. See “Private Funds Remain Focus for SEC’s 2024 Exam Priorities” (Jan 4, 2024).

Potential Implications for Non‑U.S. Investors of Recent Tax Court Decision in YA Global (Part One of Two)

In YA Global Investments, LP v. Commissioner, the U.S. Tax Court (Court) ruled that a non‑U.S. fund was engaged in a U.S. trade or business based on the activities of its investment manager and was subject to mark-to-market accounting rules, resulting in income earned by the non‑U.S. fund being deemed effectively connected income. The holding raises a number of issues and concerns for tax counsel and private fund managers about how to structure funds to avoid adverse tax consequences for non‑U.S. investors. To delve into those issues, Strafford CLE Webinars hosted a program examining the tax implications of private fund activities for non‑U.S. investors following the Court’s decision in YA Global. The panel featured Mayer Brown partner Mark H. Leeds, KPMG partner Jay Freedman and BlackRock’s global co‑head of alternatives tax Sarah Ryan. This first article in a two-part series summarizes the tax rules implicated by YA Global, along with pertinent facts from the case that contributed to the Court’s ruling. The second article will analyze the seven primary issues raised in YA Global, how the Court ruled on each and potential alternative considerations that private fund managers should weigh. See “Key Tax Issues Fund Managers Must Consider” (Jun. 10, 2021).

Adviser Penalized for Losing Access to Digital Asset Wallet and Not Producing Records for Exam Staff

The SEC recently settled an enforcement action against an investment and its principal (together, Defendants). The Defendants, who managed three private funds, allegedly failed to monitor or value fund investments, lost access to a digital asset wallet, failed to disclose a potential conflict of interest and improperly allocated expenses to a fund. They also allegedly failed to comply with the custody and compliance requirements of the Investment Advisers Act of 1940. This enforcement action is a good reminder that, among other things, private fund managers must regularly review their documents – including regulatory filings – and update or correct those documents when necessary and must be prepared to produce required records and documents when requested by SEC staff. This article details the SEC’s allegations and the final judgments against the Defendants. See “SEC Sanctions Adviser for Registration, Disclosure and Compliance Violations and Bars Its Inexperienced CCO” (Oct. 28, 2021).

Ireland’s Department of Finance Issues Recommendations for Funds Sector

In April 2023, Ireland’s Department of Finance (Department) launched a broad review of the Irish funds sector. The purpose of the review was to ensure Ireland maintains its leading position in asset management and fund servicing while continuing to support the national and regional economies. The Department recently issued its final report, Funds Sector 2030 (Report), which discusses the current state of the sector and its trajectory. It was prepared by a review team composed of staff from the Department and the Central Bank of Ireland. This article discusses the Report provisions most relevant to private fund managers, with commentary from attorneys Carol Widger and David Layden from Dechert’s Dublin office, and partners Gayle Bowen and Hazel Doyle of K&L Gates’ Dublin office. See “Ireland’s Department of Finance Consults on Framework for Funds Sector” (Aug. 31, 2023).

Project Guardian Report Addresses Tokenization in Asset Management

Project Guardian is an international collaboration of financial services firms and regulators led by the Monetary Authority of Singapore (MAS). In November 2024, the Project Guardian Asset & Wealth Management Industry Group issued an Asset and Wealth Management Funds Framework (Report) for the use of distributed ledger technology (DLT), commonly known as blockchain, in the funds industry. The Report, which explores so-called “tokenization” and use of DLT in all aspects of fund creation and management, focuses on tokenization of investors’ fund interests. Creation of the Report was led by Schroder Investment Management Limited and Franklin Templeton, with contributions from the MAS, the U.K. Financial Conduct Authority and eight international banks and asset managers. This article discusses the portions of the Report most relevant to private fund managers. See “Benefits and Challenges Associated With Tokenization of Assets” (Apr. 25, 2024).

Patrick Dundas Is Newest Member of Proskauer’s Private Funds Group

Proskauer has added Patrick Dundas as a partner in its private funds group. Based in New York, Dundas brings more than 15 years’ experience in private funds law, as well as a deep background in knowledge management and legal practice infrastructure development. For another recent addition to Proskauer, see “Proskauer Expands Hedge Funds Practice With Addition of Jennifer Dunn” (Jun. 6, 2024).

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