SEC Division Directors David Woodcock (Enforcement), Keith Cassidy (Exams), and Brian Daly (Investment Management) all spoke Wednesday at the annual Managed Funds Association conference in New York. While the topics covered were wide ranging, three key issues came up repeatedly: private credit, retail investors, and AI.
Private Credit
Director Woodcock specifically called out private credit, noting “stresses in some portfolios” and that the Division is monitoring the situation. Later in the day, Exams Director Keith Cassidy noted that the Division of Examinations is focused on private credit and has been for some time. Both Directors’ remarks are consistent with our Asset Management Regulatory and Enforcement team’s experience where SEC Staff have been asking questions, particularly around valuation and liquidity, for many months.
Retail Fraud Working Group
Enforcement Director Woodcock announced that the Division is reinstituting the Retail Fraud Working Group, which was initially created in 2017 under SEC Chairman Jay Clayton and then-branded as the Retail Strategy Task Force. This action is consistent with the SEC’s overall reorientation to focus on misconduct affecting retail investors. If past is prologue, the Working Group is likely to focus on financial conflicts of interest that could be seen as disadvantaging retail investors and benefiting advisers, particularly in connection with fees and expenses. Given the increase in retail investor assets in traditional private fund strategies in recent years, managers of those strategies will want to watch closely for additional details about the focus areas for the reconstituted working group.
AI Task Force
Finally, Examinations Director Keith Cassidy spoke briefly about that Division’s use of AI in connection with examinations. Cassidy said the use “could be transformational.” While it may take some time, we expect the SEC to seek to leverage use of AI to maintain examinations coverage and increase examinations efficiency. This is likely to be particularly important given the reduction in headcount over the last year.
Prepared by Your Simpson Thacher Asset Management Regulatory and Enforcement Team»