Essential Steps for Private Equity SEC Compliance
Updated: Sep 4
Private equity firms get examined differently than other investment advisers. The SEC knows that the conflicts in this business are structural -- fees, carry, expense allocations, co-investments, GP relationships -- and examiners arrive expecting to find them. What separates firms that walk away clean from firms that end up with deficiency letters is rarely whether conflicts exist. It's whether the firm identified them, disclosed them properly, and built controls around them before the examiner did it for them. I've been on both sides of that table. Here is what actually matters.
Compliance Roadmap for Private Equity Firms
Below is a practical roadmap of the essential steps for a private equity manager to build (or tighten) a credible compliance program.
1) Start by mapping your regulatory posture
Before you write policies, confirm what you are from a regulatory standpoint. Your obligations depend on your status and business model.
Key questions:
Are you SEC-registered, state-registered, or an exempt reporting adviser?
Do you advise separately managed accounts in addition to funds?
Do you manage “private funds” as defined for SEC purposes?
Do you have affiliates performing investor relations, placement activity, or administration?
Outcome: a short “regulatory map” that lists your required filings, key rules that apply, and who owns each compliance area.
2) Align disclosures to reality (and keep them aligned)
The single most common compliance failure mode isn’t misconduct—it’s inconsistency.
Your disclosures should match:
what you actually do,
what your documents say you do,
and what your marketing implies you do.
In practice, this means harmonizing:
Form ADV (and brochure supplements)
LPAs, PPMs, subscription docs, side letters
fee and expense policies
valuation policies
DDQs and pitch decks
website and investor communications
A great compliance program can still look bad if your documents disagree with each other.
3) Lock down fees and expenses like your future self will be audited
In private equity, fee and expense issues are where “reasonable people” accidentally create “regulatory problems.”
Essential controls:
Written expense allocation policy: fund vs management company, allocation methodology, timing
Approval workflow: who approves expenses, with what documentation, and what exceptions require escalation
Testing: periodic sampling and review (especially of gray-area expenses)
Disclosure checks: ensure LPAs/PPMs and side letters actually cover what you’re doing
Practical tip: categorize expenses into “always fund,” “always manager,” and “fact-dependent.” The third category is where you need the most process and documentation.
Fee and expense issues were among the most frequent findings I saw in PE examinations -- not because firms were dishonest, but because nobody had written down the rules before the gray-area decisions started piling up."
4) Build a valuation process that is consistent, documented, and defensible
Valuation is both technically complex and emotionally fraught—because it affects returns, fees, and IRR narratives that everyone would like to remain… optimistic.
At minimum, your valuation framework should include:
methodology by asset type (public, private, debt, structured, etc.)
use of third-party valuation agents (if any)
governance (committee, approvals, meeting cadence)
pricing sources and how overrides work
documentation standards for assumptions and changes
frequency and escalation thresholds
The SEC doesn’t require perfection. It does require consistency, reasonable design, and evidence.
5) Treat conflicts as an inventory, not a vibe
Private equity is conflict-rich by design. That doesn’t mean it’s bad. It means it needs to be managed and disclosed.
The funds that struggled most in examinations were rarely the ones with the most conflicts -- they were the ones that hadn't mapped them and couldn't explain their own mitigation approach when asked.
Common PE conflicts:
allocation of deals/opportunities across funds, co-invest vehicles, and accounts
allocation of broken-deal expenses
cross-transactions and affiliated counterparties
use of affiliates (operating partners, consultants, placement relationships)
preferential terms in side letters
GP-led secondaries and continuation vehicles
compensation arrangements that influence decision-making
Best practice: maintain a conflicts register with:
conflict description
who it impacts
mitigation controls
disclosure location (which document, what section)
periodic review ownership
6) Create a real marketing and investor communications control
Investor communications are now a compliance channel, not just “IR doing their thing.”
You want a repeatable review process for:
pitch decks and DDQs
performance claims and attribution
case studies and realized/unrealized examples
statements about fees, strategy, and risk
ESG claims (if applicable) and how they’re substantiated
website content and public bios
Core principle: If you can’t substantiate it, don’t publish it.
Also: keep records of what was used, when, and what support backs it up. The SEC loves records the way private equity loves management fees.
7) Implement code of ethics, personal trading, and MNPI controls
Even if you’re not a public equities shop, you still need:
a Code of Ethics
reporting for holdings/transactions (as applicable)
gifts and entertainment controls
outside business activities tracking
political contributions policy and monitoring
MNPI procedures (especially if you access portfolio company information or sit on boards)
Private equity-specific MNPI risk points include:
board materials and financial projections
cross-fund sharing of sensitive data
add-on acquisitions and financing discussions
interactions with lenders, advisors, and strategic buyers
Your goal is simple: clear rules and a reliable escalation path.
8) Strengthen portfolio company and vendor oversight
Your risk extends beyond your four walls.
A defensible program includes:
vendor due diligence (administrator, valuation firm, IT/cyber vendors, consultants)
cybersecurity baseline (MFA, access controls, incident response plan)
periodic vendor reviews and contract oversight
portfolio company data handling controls (especially for sensitive financial and employee data)
You don’t need enterprise-grade complexity. You do need evidence that you evaluated and monitored your critical providers.
9) A compliance manual that sits untouched is just literary fiction.
At minimum, establish:
a monitoring calendar (monthly/quarterly checks)
testing and sampling routines (fees/expenses, valuation overrides, marketing substantiation, gifts, etc.)
issue tracking and remediation documentation
an annual review process that produces a written output and action plan
The phrase to keep in mind is “implemented, not merely written.”
10) Build an “exam-ready” documentation system
Exams and diligence are won or lost in your ability to produce accurate documentation fast.
You want:
a central repository with permissions and version control
organized folders for policies, filings, marketing, valuation, fees, side letters, approvals
a record retention schedule
an incident log (errors, breaches, complaints, exceptions)
a response playbook (who coordinates, who approves responses, how responses are tracked)
The goal isn’t to impress anyone with folder names. It’s to avoid chaos when someone asks for something on a deadline.
A practical 60–90-day implementation roadmap
Days 1–30
confirm regulatory posture and filing obligations
harmonize disclosures (ADV + fund docs + marketing baseline)
finalize expense allocation and valuation governance
set up recordkeeping repository and retention schedule
Days 31–60
implement marketing review + substantiation workflow
implement Code of Ethics / MNPI / gifts / political contributions controls
set up monitoring calendar and testing plan
Days 61–90
conduct targeted testing (fees/expenses, valuation overrides, marketing claims)
train staff and document attestations
complete an “annual review” style memo (even if it’s not year-end) to establish the muscle
Conclusion
The PE firms that fare best in SEC examinations are not always the most sophisticated. They are the ones that built their programs around their actual risks, kept their documents consistent, and treated compliance as a business function rather than a regulatory tax. When your program is genuinely operational -- not just written down -- diligence runs faster, investor confidence rises, and you are not scrambling when the SEC calls.
If you are not sure whether your program would hold up under that kind of scrutiny, that is worth finding out now rather than later.
Susan Kim is a former SEC examiner and the founder of No Bad Acts LLC, a compliance advisory firm serving investment advisers and private fund managers. She can be reached at skim@nobadacts.com.
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