Earlier this month, the SEC Division of Examinations (Division) announced its 2023 Examination Priorities (Report) and, not surprisingly, confirmed that private funds will remain front and center at the Commission. The Report emphasized that Exam Staff will continue to focus on private fund advisers' conflicts of interest and the calculation and allocation of fees and expenses to investors, while ensuring that funds are complying with the new Marketing Rule and have implemented sufficient policies and procedures to ensure that compliance going forward.

The Report also highlighted that the Division will closely review private funds with "specific risk characteristics," including funds that hold hard-to-value investments such as real estate (and, in particular, commercial real estate). The SEC's stated and ongoing concerns about the calculation of fees and expenses and relative flexibility when it comes to valuing private assets go hand-in-hand; a general lack of transparency to investors coupled with more subjective valuation methods for private fund assets make detection of fraudulent activity more difficult to identify and remedy, and the SEC must fill the gap. 

The SEC's still increasing concentration on how retirement plan participants are, or may be, affected by a fund adviser's misconduct through retirement plans' uptick in exposure to alternative assets and increased allocation to private funds has changed the narrative around additional regulation in the space. The SEC, directed by Chair Gensler, continues to move closer to approaching private funds as a quasi-retail investor asset. Given that thinking, it's likely that we'll see significantly more activity in this space over the coming months, including an uptick in exam inquiries and enforcement actions. If private fund advisers have yet to evaluate their policies and procedures or recent outreach to investors, there's no time like the present.