What is the SEC custody rule?

For a pooled fund such as a limited partnership, the rule offers an audit route. The fund is audited at least once a year by an independent accountant registered with, and inspected by, the PCAOB, and its audited financial statements, prepared under generally accepted accounting principles, go to all investors within 120 days of the fiscal year-end and again after liquidation. A fund that does this is excused from the rule’s notice and account statement steps and treated as meeting its surprise examination requirement.

Say a fund’s year ends on December 31, 2026. Under the audit route, its audited financial statements go to all investors by April 30, 2027, 120 days later. Simple example. Terms vary by fund.

The annual audit it leads to is one of the main independent checks LPs get on a private fund’s numbers.

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