OCIE Issues Guidance on Due Diligence Process for Selecting Alternative Investments and Their Managers

January 28, 2014

OCIE issued the following: “Risk Alert: Investment Adviser Due Diligence Process for Selecting Alternative Investments and Their Respective Managers.” The SEC stated that an adviser that exercises discretion to purchase alternative investments on behalf of its clients, or that relies on a manager to perform due diligence of alternative investments, must determine whether such investments:

  • meet the clients’ investment objectives; and
  • are consistent with the investment principles and strategies that were disclosed by the manager to the adviser (as set forth in various documents, such as advisory disclosure documents, private offering memoranda, prospectuses, or other offering materials provided by the manager).

The Risk Alert contains OCIE’s observations on industry practices, the industry’s compliance with the Advisers Act with respect to:

  • compliance programs; and
  • code of ethics.

Among OCIE’s findings were:

  • Advisers are seeking more and broader information and data directly from managers of alternative investments;
  • Advisers are utilizing third parties to supplement analyses and validate information regarding alternative investments;
  • Advisers are performing additional quantitative analyses and risk measures on the alternative investments and their managers; and
  • Advisers are enhancing and expanding their due diligence processes and focus areas.

Click here to access the risk alert.


Investment Advisers, Investment Companies