Key Take-Aways from Recent Industry Conferences: Senior Investors & Private Funds

08 May 2019

Written by Katie Mogan


We wanted to share with you the common themes we’ve observed among the recent industry conferences we attended.  Let us know if we can help you with any of these topics.

Senior Investors

It was discussed that the SEC views senior investors as the most vulnerable investor group and considers it the investment advisers’ fiduciary responsibility to always place the interest of the client first.  As far as the SEC is concerned, if you have senior clients, you need to have a senior investor policy.  If you don’t have one and would like a template to get started, let us know.

As part of your procedures, you should attempt to acquire a trusted contact for your senior clients to help avoid elder abuse.  One of the speakers talked about instances where the trusted contact ended up being the one to take advantage of the senior client.  To prevent this, they proposed getting two trusted contacts: one familial and one not familial.  While this is not a requirement, if you suspect a particular client has a high chance of someone taking advantage of them, this might be a potential way to help avoid it.

The policies should also address, at a minimum:

  • signs of diminished capacity and/or elder abuse and the process in place to report if the signs become apparent.
  • how changes to the senior investor’s income should impact their overall profile and how as an investment manager you monitor these changes
  • the process for reviewing marketing materials tailored made for senior investors
  • the process for offering riskier investments (real estate, annuities) to senior investors and the suitability
  • training provided to staff to recognize signs of diminished capacity and/or elder abuse


Action Items

  • Develop senior investor policies. Ask us for a sample »
  • Obtain Trusted Contacts for your clients/investors who are age 60 and older. Learn how »
  • Train your staff on signs of diminished capacity and elder abuse. Understand the signs »
  • If you experience any issues of diminished capacity or elder abuse with your clients document all communications and decisions being made.


Private Funds

According to the SEC, there are more enforcement actions in private equity than the hedge fund space right now, primarily due to allocation of fees and expenses.  The SEC often reviews Form PF, 13F and other regulatory filings to find violations such as late filings and recidivist violations to select which private fund advisers to examine. Accuracy and timeliness of filings are important!

Appropriateness of Expenses

Questions to ask yourself to determine the appropriateness of expenses incurred:

  • Is the expense clearly and specifically disclosed in fund docs?
  • Is the expense fairly and equitably related to fund activities?
  • Is the expense traditionally viewed and understood by investors as a fund expense?
  • Has the Adviser consistently allocated this type of expense to the fund?


Important to remember: Retroactive disclosures are not looked well upon by the SEC.  Disclosures should be made at first investment/capital call.

Expenses Commonly Misallocated to a Fund

Funds should not have to pay for firm-level expenses.  Below are some of the firm-level expenses that the SEC often finds inappropriately expensed to a fund.

  • Technology
  • Computer equipment
  • Compliance
  • Rent
  • Utilities
  • Employee comp
  • Incidentals (parking, employee benefits)
  • Firm-branded swag/products distributed at fund-specific meetings


Fairness of Expense Allocation

Expenses should be allocated fairly:

  • Between funds and the advisory firm
  • Among the funds and portfolio companies
  • Among the funds and co-investors


The allocation should be based on usage of services, size of the fund, and disclosures.

Expenses that Required Disclosure

The types of expenses below require adequate disclosure and explanation:

  • Monitoring fees (annual automatic renewals and calculations methodology)
  • Board of Directors fees
  • Break-up fees
  • Expense reimbursements
  • Affiliations and unaffiliated 3rd party fees paid (operational support fees)
  • Co-investment vehicle expenses
  • Liability insurance
  • Dead deal costs
  • Advisory fee off-sets and their application of various fund expenses paid and funds eligible for off-sets
  • LP meetings

If you have any questions or want additional information, just reach out.  As always, we’re happy to help!