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    Jul. 3, 2025

Focus on SEC Examinations

Due to the Fourth of July holiday in the U.S. tomorrow, this issue highlights five articles from the Hedge Fund Law Report’s archives that focus on SEC examinations, including how the SEC’s Division of Examinations (Examinations) selects investment advisers to examine; how fund managers should handle their initial contact with Examinations staff; how to prepare for and navigate the exam; how to minimize the risk the exam will end in a referral to the Division of Enforcement; and what non-U.S. advisers should expect in SEC exams. The Hedge Fund Law Report will resume its normal publication schedule the week starting July 14, 2025. For observations from former Examinations staff members on the Division’s 30th anniversary, see our two-part series: “Its Creation and Evolution Over the Last 30 Years” (Apr. 10, 2025); and “Its Present State and Possible Future” (Apr. 24, 2025).

How the SEC Selects Advisers for Examination

In 2023, the SEC Division of Examinations (Division) issued a risk alert (Risk Alert) outlining its examination selection process for registered investment advisers. Those advisers represent a diverse group that includes small firms and global asset managers and serve diverse clientele, participate in a broad scope of activities and oversee a wide range of assets under management. The number of SEC-registered investment advisers has grown, and the Division examines approximately 15 percent of them each year, employing a risk-based approach for selecting both the advisers to examine and risk areas for examination. The article summarizes the Risk Alert, including how the Division selects advisers to examine, focus areas to concentrate on and documents to request, with insights from Benjamin Kozinn, who, at the time of writing, was a partner at Schulte Roth & Zabel LLP and is now a partner at McDermott Will & Emery LLP; and Valerie Ruppel, a former SEC examiner who, at the time of writing, was practice lead at Bovill and is currently CCO at IMA Advisory Services, Inc. A checklist of initial documents typically requested by the Division is also included. See “Risk Alert Offers Insight on Exams of Newly Registered Advisers” (May 25, 2023).

How to Handle the Initial Contact with Examinations Staff

SEC examiners begin many routine examinations of private fund managers with lengthy calls with the adviser’s CCO. In part designed to help the SEC obtain the greatest return on the investment of its limited resources, those calls provide SEC examiners with an opportunity to learn more about the relevant adviser’s business and compliance program earlier in the exam process. This two-part series examines the format and substance of those initial calls and provides guidance on how CCOs can prepare for those interactions with the examiners. The first article discusses the ways in which the SEC initiates the examination process and provides insight into the form and substance of those introductory calls between the examiners and the CCO, including who participates in them on behalf of the SEC and the adviser. The second article examines how the SEC is using those calls to meet multiple objectives; outlines the topics that are generally discussed during them; and explores how a CCO can prepare accordingly, including what documents and information he or she should review in advance and what materials should be on hand during those calls. See “Present and Former SEC Officials Discuss Examinations” (Jun. 2, 2022).

How to Prepare for and Navigate the Exam

Examinations play an integral role in the SEC’s supervision of investment advisers. An ACA Group program reviewed the examination landscape, including selection of advisers for examination; the examination process; interviews and document production; interactions with SEC staff; and self-reporting. The speakers also offered tips for preparing for, and successfully navigating, an exam. Jaqueline Hummel, former director of thought leadership at ACA Group, led the discussion, which featured Neil T. Smith and Lance C. Dial, partners at K&L Gates LLP. The article synthesizes their insights. See “CCOs Share Recent SEC Exam Experiences” (Apr. 15, 2021); and “A Checklist for Advisers to Prepare Their Traders for SEC Exam Interviews” (Mar. 14, 2019).

How to Minimize the Risk the Exam Ends With an Enforcement Referral

Although there has been much talk of deregulation under the new Trump administration, investment advisers remain subject to close SEC scrutiny. A program presented by Davis Polk offered guidance on preparing for and handling routine examinations conducted by the Division of Examinations – then known as the Office of Compliance Inspections and Examinations (OCIE) – with a view toward minimizing the risk of a referral to the SEC’s Division of Enforcement (Enforcement Division). The program featured Davis Polk partners Leor Landa, Amelia T.R. Starr and James H.R. Windels, along with associate Marc J. Tobak. This two-part series summarizes the panel’s insights. The first article discusses five areas identified by the panelists on which OCIE frequently focuses during the examination of investment advisers. The second article provides guidance on the steps advisers can take to minimize the likelihood that OCIE will refer certain issues to the Enforcement Division. See “Common SEC Exam Issues for Large Advisers and How to Avoid Them” (Mar. 27, 2025); and “How Managers Can Navigate the Thin Line Between SEC Examinations and Enforcement” (Nov. 14, 2019).

What Non-U.S. Advisers Should Expect in SEC Exams

All investment advisers that are registered with the SEC – including those that manage private funds – are subject to examination. Not even a global pandemic could stop the SEC’s Division of Examinations (Examinations) from conducting 2,128 exams in fiscal year 2020. Of course, those exams were largely conducted remotely, and the success of remote exams may have contributed to the increase in exams of investment advisers based outside of the U.S. The first article in a three-part series discusses the SEC’s authority to conduct examinations of non‑U.S. advisers and the trend of more exams of those advisers. The second article compares SEC exams of U.S. advisers to its exams of non‑U.S. advisers and SEC exams to exams conducted by foreign regulators. The third article provides practical tips for non‑U.S. advisers that may face an SEC exam for the first time. See our two-part series “What Hedge Fund Managers Can Expect From SEC Remote Examinations”: Part One (May 12, 2016); and Part Two (May 19, 2016).

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Women to Watch: Contributions, Achievements and Observations of Outstanding Female Professionals

To mark International Women’s Day, women editors and reporters at ION Analytics interviewed outstanding women in the industries and jurisdictions we cover. In this part, Law Report Group editors Jill Abitbol, Robin L. Barton and Megan Zwiebel profile notable women in data privacy, cybersecurity, private funds and anti-corruption law, including Anne-Gabrielle Haie, Jessica Lee, Micaela McMurrough, Laura Perkins, Amanda Raad, Madelyn Calabrese, Ranah Esmaili and Genna Garver. Enjoy reading their inspiring remarks here.