On November 17, 2025, the Division of Examinations released its 2026 Exam Priorities. While the SEC did not publish a standalone “private funds” section, the message for private equity and private credit managers is unmistakable: private funds remain one of the Division’s most scrutinized categories, and examiners are expected to expand—not scale back—their testing of conflicts, fees, valuation, data governance, and operational resiliency.
Notable amongst the priorities is the resurfacing of many of the tenets of the vacated or withdrawn rules from earlier in the year. So, while those rules may no longer be, the guidance and discussions within the proposals and rules, are instructive.
Below is a deeper, more actionable interpretation of how the 2026 priorities translate into exam reality for PE firms today, and what sponsors should do to prepare.
The 2026 Themes Most Relevant to Private Equity
1. Fiduciary Duty as the Exam “Catch-All” for Private Funds
The SEC highlights fiduciary duty—particularly in the context of alternative investments and long-lock-up vehicles—as a central lens for its 2026 exams. With the Private Fund Advisers Rule vacated, fiduciary duty becomes the framework for examining the full private fund lifecycle:
- Allocations across funds, vintages, co-invests, SMAs, and registered products
- Valuation governance, especially around Level 3 equity and private credit assets
- Fees and expenses, including offsets, broken-deal allocations, monitoring fees, director fees, and financing costs
- Investor-by-investor treatment, including liquidity, information rights, and co-invest access
How examiners are likely to test fiduciary duty in 2026
Expect more comparative and evidence-driven testing:
- Cross-checking allocations across funds
- Reviewing fee-offset logs and substantiation for allocation methodologies
- Evaluating valuation evidence around fundraising, recaps, continuation funds, and carry crystallization
- Sampling investor communications to detect unequal information flows
2. Compliance Program Effectiveness: “Paper Programs” Will Fail
The SEC reiterates that assessing the effectiveness of advisers’ compliance programs—not the elegance of the manual—is “fundamental” to examinations.
Examiners will probe six domains: valuation, trading, portfolio management, marketing, filings/disclosures, and custody—with special emphasis on private fund economics and how disclosures align with practice.
What effectiveness testing looks like now
- Matching written allocation policies to actual allocation files, committee minutes, calendars, and emails
- Re-performing management fee calculations, including tracing offsets and shared expenses
- Re-reviewing valuation memos, challenge logs, assumptions, methodology changes, and internal dissent
- Sampling marketing materials to confirm performance claim controls
- Testing whether annual reviews identify real issues, assign owners, and document remediation
Common exam failures
- Informal or undocumented allocation decisions
- Expense allocations based on “customary practice” rather than written policy
- Annual reviews that describe processes but fail to identify weaknesses
- Valuation decisions made via email or meetings with no supporting record
3. Cybersecurity, Data Governance, AI, and AML: No Longer Peripheral Topics
The SEC’s “cross-cutting risk” category is now core for private fund advisers.
Cybersecurity & Operational Resilience
Exams will evaluate:
- Resiliency of LP portals, data rooms, outsourced admins, and cloud infrastructure
- Controls around access management, offboarding, least-privilege, and orphaned accounts
- Evidence of tested incident-response plans with clear roles and escalation
- Governance of vendors and third-party providers, including critical offshore resources
PE-specific exam hot spots:
- Capital call wire fraud controls
- Fund admin connectivity and data flows
- Portfolio company access pathways
Reg S-P & Reg S-ID compliance
2026 exams will check readiness for the amended Reg S-P rules, including:
- Data classification and inventories
- Written, board-approved incident-response procedures
- Notification controls and documentation
- Identity-theft program governance
AI and Emerging Technologies
If the firm says “AI-powered,” examiners will expect:
- A description of the actual tools used
- Model governance, limits, and testing
- Human-in-the-loop controls
- Controls around AI-driven deal sourcing, risk scoring, monitoring, and marketing claims
AML & Sanctions
Although advisers are not BSA-regulated entities, the SEC explicitly cites OFAC and sanctions compliance as an expectations area. Examiners will review:
- Screening documentation for LPs, co-investors, and critical counterparties
- Evidence of rescreening, escalation, and remediation
- Coordination with fund-level or broker-dealer AML programs
What Private Equity Firms Should Do Now
Think of 2026 as the year to upgrade four pillars: conflicts, valuation, operational resiliency, and narratives.
1. Build a Conflicts & Fees Heat Map (Then Prove It Works)
Map key categories:
- Deal and follow-on allocation methodologies
- Side-letter rights, MFNs, liquidity rights
- Management fees and offsets (credit + equity)
- Monitoring, consulting, director, and transaction fees
- Expense allocations: broken deal, ODD, legal, fund formation, secondaries
For each item ask:
- Is it clearly disclosed?
- Is it applied consistently?
- Can we prove it with documentation tomorrow?
Cross-check:
- LPAC minutes vs. side-letter obligations
- MFN matrices vs. actual onboarding decisions
2. Re-Perform Valuation & Liquidity Testing for Illiquid Assets
Sample positions and rebuild the valuation from the ground up.
Best practice evidence includes:
- Methodology memos with assumptions and judgment calls
- Challenge logs, dissent notes, and approvals
- Rationale for methodology changes (fundraising, continuation events, stress points)
- Liquidity modeling for long-lock private credit assets, including NAV facility covenant sensitivities
3. Upgrade the Annual Review into a Diagnostic Tool
A credible annual review should include:
- A private-fund-specific risk module
- Findings tied to root cause and owners
- Evidence of remediation (not just narrative commentary)
- A risk assessment mapping each major control area: allocation, valuation, fees, marketing, custody, cyber
4. Treat Cyber as a Core Fund-Level Risk
- Maintain a vendor risk matrix for admins, portals, IT, data rooms
- Test capital call wire-fraud scenarios
- Document incident-response exercises
- Validate access controls and offboarding across deal teams and portfolio companies
- Ensure you meet amended Reg S-P expectations for notification and data governance
5. Scrub AI & Tech Narratives
Inventory every AI or data-driven claim made in decks, DDQs, and RFPs. For each:
- Identify the actual tool/process
- Define governance and limits
- Document how humans validate or override model outputs
- Remove or clarify overstated claims
Recent SEC exams have included a section focusing on AI claims and substantiation.
6. Document AML & Sanctions Processes
Even if not BSA-covered:
- Clarify who screens LPs, co-investors, and portfolio companies
- Document hits and resolutions
- Rescreen periodically and document results
- Align with fund-level or BD-level AML expectations
How Trillium Can Assist
Most firms do not need to reinvent their programs—but they do need sharper execution and better documentation.
Trillium helps PE sponsors:
- Conduct exam-style reviews of allocations, valuation, and fee practices
- Build private-fund-specific annual reviews and risk assessments
- Strengthen conflicts frameworks, side-letter governance, and MFN execution