GP compliance priorities for 2023 are full mock SEC exams and IT
November 16, 2022
By Sanyu Kyeyune, NAREIM Head of Programming
The NAREIM Legal, Compliance & Risk virtual meeting focused on building teams and investing in the right technology.
The discussion started with compliance resources, which can vary significantly across firms. For vertically integrated firms, and those with multinational operations, their compliance needs can be more complex.
Most managers do not plan to hire more full-time employees in 2023, and some just don’t have the time to recruit. However, investing in interns from local universities can be a low-cost way to meet staffing needs for more junior roles.
By and large, most firms are targeting junior hires for compliance roles to help with execution, which requires a large time commitment for the senior and executive decision-makers managing those employees. Mid-level employees are difficult to find, while the more senior-level hires require higher compensation, including promote and other incentive structures. Offering long-term incentives can help with retention, some managers have observed.
Investing in technology
As firms scale and grow into new jurisdictions and competencies, asking for compliance resources becomes imperative. As does investing in technology. But who manages and owns the technology? This person needs to educate teams throughout the organization to use it properly. A poll of attendees showed most firms have 1-2 employees dedicated to legal and compliance.
Half of firms attending the virtual meeting are considering investing in new legal and compliance software and systems in 2023. One manager successfully pushed this budget item to the Investor Relations group to offset cost. Side letters, contract management and marketing are the top issues managers are looking to address with technology.
SEC rules, exam prep
Regulatory concerns were also top of mind for managers focused on legal and compliance. Proposed SEC private fund rules addressing vendor due diligence, outsourcing, reporting, ESG disclosures and cybersecurity add further complexity to the mix, and call for additional staffing resources.
What will managers need to prepare ahead of SEC exams? For those managing separate accounts, and working with high-net-worth investors may need to rework their electronic signature verification processes. With the SEC taking a closer look at side letter terms, compliance-focused managers will need to spend more time collecting and assigning provisions. Technology can help here, but it needs to be met with support across the organization, not just in the compliance group. Real estate advisors will also need to further scrutinize investment allocation, such as co-investment vehicles, fees and expenses.
Half of attendees are considering a full scope mock SEC exam in 2023, and around one third are planning a partial scope mock exam. Some insurance providers offer discounts for mock exams. Operational due diligence meetings with investors can also help managers prepare.
The SEC wants to see strong policies and procedures, backed by documentation. Among deficiencies, recent SEC exams revealed inadequate compliance resources, from advisors growing in size and not meeting that growth with staffing resources, CCOs being bogged down with multiple responsibilities including HR and IT, and insufficient staff. Managers can use this as leverage when approaching conversations about allocating compliance resources.
You may view the presentation and polling results from the virtual meeting at this link.