From Terrance J. O’Malley

Here are five quick take-aways on how the U.S. presidential election results might impact the SEC’s regulation of private funds.

1. An Emphasis on Investor Protection. The SEC is a relatively a-political agency (though it may experience some influence on the margins). That said, the SEC has a mandate to protect investors and to maintain orderly and efficient markets. Those dual mandates are often compatible. When they diverge, look for subtle shifts toward investor protection. Consider it unlikely, for example, that the SEC will further loosen the minimum requirements for investing in private funds.

2. Institutional Investors Can Look Out for Themselves. Within the range of investor protection, there are retail investors and there are institutional investors. Look for the SEC to focus more on the retail end of the spectrum. In that scenario, the SEC will expect institutional investors to protect themselves in the face of bad or even fraudulent investments. That should mean greater prominence for the initial and on-going due diligence process.

3. Enforcement. The SEC will likely stress organizational accountability in the enforcement arena. That could result in more failure to supervise case, and fewer chief compliance officer cases. Put another way, the SEC might be more wary of investment management firms who try to put too much responsibility on the CCO, particularly where the CCO lacks c-suite authority.

4. Rulemaking. The SEC will emphasize transparency, as well as regulatory simplicity. In that light, consider the recent proposal to change 13F reporting requirements. It’s not happening. That’s not news. But the proposed changes would have drastically reduced the reporting of equity holdings by larger institutional managers. The requirement wasn’t broken and its not getting fixed. Don’t expect any similar disclosure-limiting rules or amendments any time soon.

In addition, proposed changes to the advertising rule remain outstanding. The proposal is a good effort, contains some helpful ideas and addresses some nagging problems. But the release is 505 pages! Don’t be surprised to see that get whittled back a bit, simplified and maybe even reproposed.

5. Examinations. Look for compliance examinations to mostly stay the course. Examinations will continue to focus on garden-variety issues that haven’t changed in 50 years, along with cybersecurity efforts. But don’t be surprised to see some additional inquiries about the alignment of interests between firms and their client/investors, as well as organization structures that ensure a meaningful voice for the compliance function. That might result in compliance exam questions about internal financial incentives, management company budgets, organizational charts and the credentials and qualifications of chief compliance officers.