Investment Adviser Due Diligence Processes for Selecting Alternative Investments and Their Respective Managers

For at least the past six years, staff in the Office of Compliance Inspections and Examinations (the “staff” and “OCIE” respectively) have observed and outside studies have indicated that investment advisers, including pension consultants, are increasingly recommending alternative investments to their clients. Investment advisers are fiduciaries and thus must act in their clients’ best interests. An adviser that exercises discretion to purchase alternative investments on behalf of its clients, or that relies on a manager to perform due diligence of alternative investments, must determine whether such investments: (i) meet the clients’ investment objectives; and (ii) are consistent with the investment principles and strategies that were disclosed by the manager to the adviser (as set forth in various documents, such as advisory disclosure documents, private offering memoranda, prospectuses, or other offering materials provided