Designing Compliance Programs for Today’s Private Fund Advisers

By Reed Schuster, Michael Barakat, Joshua Demers

As private fund advisers move out of Form ADV annual amendment season, the regulatory conversation shifts in a very practical way. The focus moves from what has been disclosed to whether an adviser’s compliance program is operating as intended and is positioned to address the areas regulators are actively prioritizing. This post-Form ADV period is often where advisers assess whether their program can withstand real scrutiny, not just on paper, but across day-to-day decision making.

The Securities and Exchange Commission’s (“SEC”) 2026 Division of Examinations priorities provide a clear framework for that assessment. While most compliance professionals are familiar with the themes, examinations show that the SEC is applying these priorities by looking for evidence of design, implementation and execution. The central question exam teams are asking is whether the compliance program reflects the adviser’s actual business model and risk profile, and whether it does so consistently across strategies, products and operational functions.

One area where this is most apparent involves newly registered advisers and newly launched private funds. Examiners are closely evaluating whether compliance programs were designed early and tailored to the adviser’s specific activities. Where advisers have scaled quickly, added strategies or expanded operations, examiners are testing whether compliance infrastructure evolved alongside the business. Generic or lightly customized policies, delayed rollouts or inconsistent adoption across teams continue to be common pressure points. Programs that perform well are typically able to show how risks were identified upfront, how controls were implemented in practice, and how gaps were identified and corrected over time.

Anti-money laundering (“AML”) and investor due diligence represent an area where compliance programs should be taking deliberate steps even without a firm regulatory deadline. The Financial Crimes Enforcement Network has delayed its formal AML rule for investment advisers until January 1, 2028, and the final scope of that rule remains subject to revision. However, obligations relating to economic sanctions and the Office of Foreign Assets Control exist independently and have always applied. The practical challenge for private fund advisers is calibration. Investor onboarding processes that are overly burdensome, can create friction for limited partners and are difficult to sustain as firms grow or launch new products, while insufficient diligence can create regulatory and reputational exposure that is difficult to remediate after capital has been accepted. Firms navigating this effectively have adopted risk-based frameworks that apply proportionate scrutiny based on the relevant facts and circumstances rather than relying on a single, uniform standard.

Private credit and other alternative investment strategies have also become a focal point, given valuation complexity, leverage, liquidity considerations and investor protection concerns. Examinations in this area tend to be highly detailed. Examiners look beyond whether a valuation policy exists and instead focus on how valuation decisions are governed, who reviews them, what documentation supports them, and how disclosures align with actual portfolio management practices. Compliance programs designed for today’s private funds are expected to integrate valuation oversight, committee processes and ongoing monitoring into routine operations, rather than treating them as standalone policy requirements.

A private fund adviser’s fee and expense practices remain a perennial area of heightened regulatory scrutiny. Examiners are looking closely at how advisers allocate fees and expenses across funds and co-investment vehicles, including operating partner expenses, portfolio company charges, monitoring fees, and broken-deal costs. The focus extends to whether a fund’s governing documents, including private placement memoranda and limited partnership agreements, accurately enumerate the costs investors will bear over the life of the fund. The SEC increasingly takes a “list it or lose it” approach to fees and expenses, with broad or generic disclosure language around fees and expenses being increasingly viewed by the SEC as insufficient. Examiners expect advisers to map fee-related conflicts to specific business activities and to demonstrate that allocation methodologies are applied consistently and in accordance with governing documents. Compliance programs should include periodic testing of fee calculations and expense allocations against the terms of applicable fund documents.

Fiduciary duties and conflicts of interest remain foundational across all examinations, particularly for advisers managing multiple products or client types. Allocation practices, expense treatment and preferential terms are areas where examiners expect advisers to demonstrate consistent execution and oversight. Broad disclosures are increasingly insufficient. Examiners are assessing whether conflicts are mapped to specific business activities, whether disclosures reflect current practices, and whether monitoring processes identify and address issues as they arise. Effective programs tend to show a clear loop from identification to disclosure to monitoring to resolution.

The SEC’s growing focus on artificial intelligence (“AI”) and automation further reinforces the need for integration between compliance, operations and technology. Examiners are reviewing how advisers use AI and automated tools across investment decision making, trading, research, risk modeling, marketing and operational workflows. The emphasis is not innovation for its own sake, but supervision and accountability. Advisers are being asked to explain where these tools are used, who approved them, and how outputs are reviewed and challenged.

This is especially true for third-party or black box tools. Where advisers rely on systems they cannot fully explain, examiners are shifting attention to governance. They want to see defined use cases, documented approval processes, clear ownership and evidence of human oversight. A recurring examiner question is straightforward: if a tool produces an unexpected result or drives a bad outcome, who would know, how would they know, and what actions would follow? Compliance programs that address these questions proactively are better aligned with current regulatory expectations.

All of these themes converge in the annual compliance review and the resulting annual compliance report prepared under Rule 206(4)-7. As advisers complete their Form ADV annual updates and move forward, the annual review becomes a key mechanism for demonstrating that the program is reasonably designed and effectively implemented. Examiners are using the review to assess whether current priority areas, such as private credit, conflicts and the use and governance of AI, are reflected in the adviser’s risk assessment, testing and remediation efforts. Where these risks are present in the business but absent from the annual review, examiners may question whether the program is truly responsive.

Designing compliance programs for today’s private funds requires more than updating policies or expanding disclosures. It requires building a program that aligns with how the adviser actually operates, produces evidence of oversight and evolves as strategies, technology and regulatory expectations change. Advisers that approach compliance program design through that lens are better positioned not only for examinations, but also for sustained growth in an increasingly complex environment.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.