For any private fund manager, there are certain milestones — among them, crossing the 9-figure mark as their assets grow to over $100 million. But, with this growth comes a new level of SEC regulation and oversight that they must adopt.
Whether you are approaching the $100 million threshold, or simply adjusting to meet the new requirements of the 2023 SEC Private Fund Adviser rules, there are specific things you can do to better position yourself for the audits, valuations and ongoing reporting needed to ensure compliance. Here are six steps you can take to make your journey toward compliance more organized and streamlined.
First, Identify A Third Party Auditor
Both established regulations and the new 2023 SEC Fund Advisor Rules mandate that certain functions must be handled by an objective, third-party firm. Your first step should be to conduct a thorough search for a qualified independent firm that not only has a depth of experience in working with private funds but also has the required PCAOB Certification mandated by the SEC. The early identification and selection of a third-party firm can help you expedite much of the work involved.
Engage With All Parties Early
A crucial part of any audit is establishing open communications between your internal personnel and the independent audit team. By bringing together all people involved early in the process, you can ensure an easier road ahead. In addition, by providing early access to the relevant documents, information and personnel, you can better equip your outside audit team to expedite the process, and meet or beat any applicable deadlines.
Review The New Rules And Regulations
Your fund is, no doubt, already doing some of the basic tasks to provide transparency and accurate reporting. However, the passing of the 2023 rules, plus the changing of your status as you approach the $100 million mark, will elevate you to a new level of transparency and oversight. Your third-party auditor can work with you to conduct a “gap analysis” of where you are, where you need to be, and what risk factors need to be addressed.
Get Organized
It goes without saying that it is important to have all financial records and documentation organized. But don’t stop there. New requirements require in-depth reporting around areas concerning adviser fees, commissions and expenses, plus any activities involving preferential treatment. There is also a heightened level of reporting around fund performance, as well as providing written documentation your compliance policies and procedures.
Create A Realistic Workflow
Virtually all areas of compliance have deadlines that are clearly spelled out. By working with an experienced independent auditor, you can reverse-engineer a schedule that helps minimize stress and disruption – as well as the risk of potential penalties.
Post Audit Follow-Up
Once an audit is complete, conduct a thorough follow-up. Address any significant audit findings promptly and implement recommendations for continuous improvement. Establish processes for ongoing compliance monitoring to ensure that your private equity fund remains audit-ready in the future. Review the audit process itself, and determine which areas are working smoothly and where you might have room for improvement.
Preparing your private equity fund for its first audit is a crucial — and required — step towards ensuring regulatory compliance, financial transparency, and investor peace of mind. The process can be complex, but with the right strategies in place, you can navigate it smoothly.
Talk to HORNE
As a Top 25 Accounting Firm, HORNE has the expertise and capabilities that fund advisers need, including the mandatory PCAOB certification required by the new SEC rules. To find out more about the 2023 SEC Private Fund Rules and how you can ensure compliance, contact us today to arrange a no-obligation, complimentary consultation.
