The SEC under the Biden administration is likely to shift its current focus on individual retail investors to pension funds and larger investors, and give closer scrutiny to private funds, former Securities and Exchange Commission enforcement officials said Thursday during a webinar hosted by their law firm, Debevoise & Plimpton.
While outgoing Chairman Jay Clayton's replacement has not been named, the three Democrats on the five-member commission will control the votes. "I think you are going to see an aggressive enforcement director no matter who the chair is," said partner Julie M. Riewe, former co-chairwoman of the SEC enforcement division's asset management unit.
Partner Robert B. Kaplan, who also served as the unit's co-chairman, said private equity and other private funds should prepare for more scrutiny by SEC examiners and enforcement officials. While the current approach has been to assume that the funds' investors are sophisticated enough to need less protection, "that is going to be a signature change. I think there is going to be a lot more pressure on disclosure," Mr. Kaplan said.
The enforcement experts expect examinations of private funds to continue focusing on fees and expenses but will also "be wading into the gray areas of disclosure" of things such as the funds' affiliated service providers, how investment opportunities are allocated among clients, and insider trading, he said.
"I think it is going to be a rocky period for private funds over the next few years," Mr. Kaplan said.
ESG "is going to be a very hot policy side topic, and I think there will be spillover into enforcement," Ms. Riewe said. "I think you're going to see staff scrubbing of disclosure. … It's going to be something the administration will want to hear and want to send a message about," she said.
Current SEC enforcement officials are also preparing to enforce the new best interest standard for advisers, known as Reg BI. "These cases do give the agency an opportunity to send a message to the marketplace," said Charu Chandrasekhar, Debevoise & Plimpton counsel and a former leader of the enforcement division's retail strategy task force.
