How are advisors investing client money? The bulk of AUM is invested in pooled vehicles, the study found. Registered investment companies ($29 trillion) and private investment vehicles ($19.9 trillion) together represent $48.9 trillion—nearly 60 percent—of the total $82.5 trillion AUM.
Private equity funds are becoming more prevalent than hedge funds. In 2018, 4,654 advisors reported advising 36,095 private funds with a total gross asset value of $13.3 trillion (up from 4,574, 34,409 and $11.5 trillion, respectively, in 2017). While the percentage of hedge funds and private equity funds was exactly equal two years ago, their popularity as a pool of choice has diverged, with private equity funds making gains (advisors reported 1,104 additional private equity funds) as the number of hedge funds declined. Private equity funds now make up 38.5 percent of privately offered funds and hedge funds represent 31.7 percent in the private fund space.
The study also compiled a disciplinary profile of the RIA industry, which found only slight changes from 2017:
• 10,863 registered investment advisors (86.4 percent) reported no disciplinary history at all, which is the same percentage of advisors that reported no disciplinary history last year.
• 145 registered investment advisors (1.2 percent) reported that they or an advisory affiliate were the subject of a regulatory proceeding that could result in a “yes” answer. This is an 18.9 percent increase from the previous year, in which 122 firms answered the question affirmatively, but represented less than one percent of all advisors.
• Similar to last year’s reporting, 163 firms or advisory affiliates (1.3 percent) reported that the SEC or the Commodity Futures Trading Commission (CFTC) found them to have made a false statement or omission and 541 firms (4.3 percent) reported that they have been involved in a violation of SEC or CFTC regulations or statutes, which is up by one firm from last year. Only 15 firms reported that they or an advisory affiliate have been found by the SEC or CFTC to have been the cause of an investment-related business having its authorization to conduct business denied, suspended, revoked or restricted, which is unchanged from the previous year.
• 533 firms or advisory affiliates (4.2 percent) reported that the SEC or the CFTC imposed a civil money penalty on the advisor or its affiliate or were ordered to cease and desist from an activity, a slight decrease from the prior year.
• Of the 1,715 advisors reporting at least one disciplinary event, 902 advisors (52.6 percent) attributed the disclosure events to an affiliate and not directly to the advisor or its supervised persons, the study found.