As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, many advisers to private funds, including certain real estate and private equity funds, are required to be registered as investment advisers with the SEC. After being exempt from registration for over 70 years, these private fund advisers are now subject to the full scope of the Investment Advisers Act of 1940. This includes having a compliance program, making increased disclosure and reporting to investors and the SEC, and undergoing examinations by the SEC.
Advisers to real estate funds should seize this opportunity to assess their operations, policies and procedures in light of the Advisers Act requirements and the regulators' increasingly aggressive approach. They should ensure that their governance and control frameworks are designed and operated to prevent significant breaches of their fiduciary duty and assure meaningful disclosure to investors and sound compliance practices. Careful attention to compliance and governance issues will be a distinguishing factor of leaders in the real estate field in the current challenging market, regulatory and fund-raising environment.