The 2023 Securities and Exchange Commission (SEC) examination priorities address accounting and financial reporting matters important to registered investment advisers (RIAs) managing private funds.
RIAs have received a lot of attention from the SEC of late. In February, the SEC’s Division of Examinations released its “2023 Examination Priorities” report, nearly two months earlier in the year than the April release date of the 2022 report. With the volume of RIAs continuing to climb steadily, and the assets under management (AUM) growing in a similar fashion, the regulator has increased its oversight in a reciprocal manner. The 2022 report disclosed that the Division of Examinations made 190 referrals to the Division of Enforcement, which, based on the 3,040 examinations reported, is a little over a 6% referral rate. In addition, more than 2,100 deficiency letters were issued, meaning the majority of examinations yielded a deficiency. Similar data was not disclosed in the 2023 report, but the study of the examination priorities and results can be useful for RIAs to help them achieve favorable outcomes in the event of an examination.
As of the release of the 2023 report, 5,500 RIAs of private funds now manage about 50,000 funds with gross assets of more than $21 trillion under management, nearly a 17% increase in the dollar amount of AUM over 2022. And 2022’s numbers show a similar increase over 2021 and prior years. The long-standing trend in growth of alternative investments as well as increased capital for allocation are likely to continue given the demographic trends for the next five to 10 years as baby boomers keep saving and investing for retirement and millennials reach the beginning of their wealth accumulation phases as well.
Several of the topics in the 2023 report are relevant to accounting and financial reporting matters important to RIAs managing private funds.