Registered investment advisers must maintain specific books and records under the Investment Advisers Act. While Exempt Reporting Advisers face lighter requirements, maintaining thorough records is standard practice for all fund managers and is expected by institutional LPs and auditors. Poor recordkeeping is one of the most common findings in SEC examinations and one of the easiest problems to prevent.
What to Maintain
The books and records rule requires advisers to maintain several categories of records. The following list covers the core categories, though your specific obligations may vary based on your registration status and advisory activities.
Financial records. General ledgers, capital account statements, bank and brokerage statements, fee calculations and invoices, expense allocations, and all financial statements (audited and unaudited). These records must document every dollar that flows through the fund.
Investment records. Investment committee memoranda, due diligence files, term sheets, valuation analyses, and portfolio company correspondence. These records document your investment decision-making process and the basis for your valuations.
Investor records. Subscription agreements, KYC and AML documentation, side letters, investor correspondence, and capital call and distribution notices. These records document the relationship between the fund and each investor.
Compliance records. Form ADV (all versions filed), Form D filings, compliance policies and procedures manual, code of ethics, personal trading records, and annual compliance review documentation. These records demonstrate your compliance framework.
Communications. All written communications relating to any recommendation made or proposed to be made, any advice given or proposed to be given, and any receipt, disbursement, or delivery of funds or securities. In practice, this means retaining emails, letters, and other written communications related to your advisory business.
Retention Periods
The general retention period under the Advisers Act is five years from the end of the fiscal year in which the record was created. Within that five-year period, the records must be maintained in an easily accessible place for the first two years.
- Five years from fiscal year-end. This is the standard retention period for most books and records. The clock starts at the end of the fiscal year during which the last entry was made in the record.
- First two years easily accessible. During the first two years of the retention period, records must be maintained in an appropriate office of the adviser. In practice, this means readily available for inspection, not archived in deep storage.
- Organizational documents for life of fund. Partnership agreements, operating agreements, articles of formation, and similar organizational documents should be retained for the life of the fund and beyond. These are needed long after the fund winds down for tax, legal, and regulatory purposes.
- State requirements may differ. Some states impose longer retention periods or additional recordkeeping requirements for state-registered advisers or advisers with a place of business in the state. Check the rules for each state where you operate.
Practical Approach
The SEC does not mandate a specific recordkeeping system, but it does require that records be organized, accessible, and producible upon request. A practical approach includes:
- Digital record-keeping. Electronic records are acceptable and, in most cases, preferable. Digital systems offer better searchability, access controls, and backup capabilities than paper files.
- Cloud storage with access controls. Cloud-based document management systems provide secure, centralized storage. Ensure the system has appropriate access controls, audit trails, and backup procedures.
- Fund administration platforms. A fund administrator maintains many of the required financial records as part of its standard services: capital accounts, fee calculations, financial statements, and investor records. Using a fund administrator creates a built-in recordkeeping system for a significant portion of your obligations.
- Consistency and retrievability. The most important aspect of any system is the ability to find and produce records when needed. The SEC expects prompt production during examinations. A disorganized system that technically contains the records but cannot locate them quickly is effectively non-compliant.
How Capital Company Helps
Capital Company maintains fund accounting, LP capital accounts, and investor reporting for funds on the platform. Schedule a demo to learn more.
This article is for informational purposes only and does not constitute legal advice. Consult qualified professionals for guidance specific to your situation.