Key takeaways:

• The SEC staff has issued a risk alert concerning issues relating to compliance with Rule 206(4)-2 of the Investment Advisers Act of 1940 (the “Custody Rule”).
• For private fund sponsors, the alert spotlights several specific concerns relating to the failure to comply with all of the requirements of the “annual audit approach,” including issues relating to the independence of the accountant, compliance with U.S. GAAP and the distribution of the financial statements to all investors (including investors in feeder funds).