Public Pension Fund Independent Compliance Reviews

Public Pension Fund Independent Compliance Reviews

Many state and local government pension funds use third-party investment advisers to manage assets within their pension plans. Pension fund managers are drawn to engaging professional advisers to provide expertise to a range of investment strategies and asset classes. The strategies offered by investment advisers provide pension fund managers opportunities to diversify their funds’ investments and achieve various performance targets. In fact, it has become increasingly common for pension funds to invest in alternative investments, such as hedge, real estate and private equity funds, in addition to traditional asset classes and strategies.

Pension fund managers have an extensive due diligence process to screen potential investment advisers for their programs. Today, such due diligence goes beyond examining an investment adviser’s investment process, research and execution capabilities. The due diligence process also includes evaluating an investment adviser’s operational and compliance excellence and cybersecurity controls.

Investment advisers managing assets for a pension plan are expected to have a robust compliance program in place. In addition to requiring the adviser to evaluate the effectiveness of its compliance program as required by Rule 206(4)-7 under the Investment Advisers Act of 1940, pension fund managers often have additional diligence requirements. Some pension funds engage consultants to conduct due diligence over an adviser’s activities, including compliance. Other fund managers, such as the New York City pension plans, require investment advisers to obtain an independent compliance review every three years.

An independent compliance review entails a compliance consultant or similar group conducting a due diligence review of the investment adviser’s compliance program. This review generally consists of reviewing policies and procedures, assessing the adviser’s annual compliance review process, and conducting interviews with adviser staff. 

CSS Compliance Services professionals have a wealth of industry experience that makes us uniquely qualified to conduct an independent compliance review and assist your firm with fulfilling its contractual obligations to your pension fund clients. Our experience includes, among other things, building and leading due diligence teams for manager-of-manager advisers that advised pension plans and serving as Chief Compliance Officers to advisers managing pension assets. We have sat on both sides of the table with respect to due diligence reviews; on the one side, conducting reviews, and on the other side, responding to due diligence inquiries. When serving as an investment adviser to a government pension plan, have CSS conduct an independent compliance review designed to meet the requirements of any government pension plan. Learn more about our Pension Adviser Independent Review (“PAIR”) services at