SEC Shifts Focus Toward Hedge Funds' Valuation

The Securities and Exchange Commission ("SEC") recently launched a series of investigations focusing on hedge fund managers' conduct toward their investors. Specifically, the regulator is examining managers' valuation of illiquid, thinly traded securities and how they respond to investors' redemption requests.

SEC enforcement director Andrew Ceresney said examiners are looking for "all types of misconduct by hedge fund managers," adding that valuation "is one of the core issues." Although hedge fund managers have traditionally avoided scrutiny when it comes to determining the value of their underlying investments, both investors and regulators are now examining them more closely as private investments in certain sectors have performed poorly amid market instability.