Fund-of-Funds Manager Took Revenue-Sharing from Affiliates
The SEC fined a fund-of-funds manager $500,000 for failing to disclose that it received revenue sharing compensation from two affiliates that managed funds that the respondent recommended. According to the SEC, the fund-of-funds manager negotiated side letters initially intended to benefit clients but which directly benefited the respondent through payments routed through the firms’ common parent domiciled in France. The respondent failed to properly record the payments in its financials. The SEC accuses the fund-of-funds manager with violating the specific terms of client agreements and failing to implement an adequate compliance program.
OUR TAKE: Inter-company payments among affiliates raise the same regulatory conflict of interest concerns as payments received from non-affiliates. Compli-pros should follow the money to all of an adviser’s revenue sources in order to assess possible conflicts. Also, non-U.S. entities, perhaps less sensitive to the Adviser’s Act’s requirements, should hire qualified lawyers or compli-pros to avoid tripping over the regulatory wires.