Key takeaways:

• The SEC recently settled a case with a registered investment adviser for the adviser’s violation of the anti-fraud provision of the Investment Advisers Act of 1940 for failing to properly allocate expenses between private fund clients and for failing to adopt policies with respect to two “integrated” portfolio companies.
• The case demonstrates the intense focus on the methodologies that private equity fund sponsors use in allocating expenses, both between private equity sponsors and the funds they manage, as well as among commonly-managed private funds.
• Private fund sponsors should ensure that they and their portfolio companies have written policies in place designed to fairly allocate all expenses among all entities that benefit from the activities driving such expenses.