Head of Investment Management Warns about Alt Mutual Funds
The Director of the SEC’s Division of Investment Management, Norm Champ, said in a recent speech that the SEC is concerned about the risks associated with alternative mutual funds and expects additional compliance policies and procedures. Specifically, Mr. Champ said that the SEC is concerned about valuation, liquidity, leverage, and disclosure. Mr. Champ defined alternative mutual funds as registered funds that invest in non-traditional assets, non-traditional strategies, and/or illiquid assets. Mr. Champ said that alternative fund sponsors should enhance fair valuation policies to include market monitoring, a review of price overrides, and independent pricing reviews. He also said that firms must adopt policies and procedures for assessing the liquidity of a security. Fund sponsors must also make sure that disclosure in prospectuses and marketing materials reflect the true portfolio management activities. Mr. Champ called on independent directors to monitor these issues.
OUR TAKE: This speech should spur fund sponsors and independent directors to bring in the compliance team to review and implement policies and procedures to specifically address valuation, liquidity, leverage and disclosure. These types of speeches are often followed by exams and enforcement actions.