Private equity compliance: A framework for fund growth

Author:

The Carta Team

|

Read time:

11 minutes

Published date:

26 February 2026

Learn how to build a strategic private equity compliance program that satisfies regulators, builds investor trust, and supports firm growth.

Why private equity compliance is a strategic advantage

For a private equity firm, compliance refers to the framework of policies and procedures designed to ensure the firm and its funds operate in accordance with regulatory requirements and commitments made to investors. Rather than viewing it as a cost center, fund CFOs and finance professionals should see a strong compliance program as a strategic asset. It builds essential investor trust and creates the operational foundation necessary for scalable growth.

In today's fundraising environment, sophisticated limited partners (LP) conduct deep operational due diligence, with many making formal checks a standard part of their process. For example, LPs typically require an annual audit of the funds they invest in—a requirement that is often only waived for the smallest, non-institutional funds. In an alternative investment market where investors are increasingly selective, a robust, technology-driven compliance function is a key differentiator that signals this expected level of institutional quality.

The evolving regulatory landscape for private funds

To build a strategic compliance function, you first need to understand the rules of the road. The regulatory requirements for private funds are constantly changing, with government agencies proposing, adopting, and in some cases, vacating new requirements. For example, the U.S. Court of Appeals for the Fifth Circuit vacated the Securities and Exchange Commission’s (SEC) private fund adviser rules in 2024, less than a year after the SEC finalized the set of rules—illustrating how quickly rules can shift and why a modern fund CFO and compliance officer must stay ahead of them to protect the firm and its investors.

Understanding these key regulations and enforcement trends is the first step toward building a resilient compliance program.

The core pillars of a private equity compliance program

For a modern CFO, effective fund management and private equity (PE) compliance is not a checklist of potential risks, but a strategic, integrated compliance program. A defensible compliance program is built on several core pillars. Mastering these fundamental areas is essential for risk management, satisfying regulators, and maintaining the trust of your LPs.

These pillars include maintaining integrity in fee and expense management, fostering transparent investor relations, conducting defensible valuations, ensuring robust anti-money laundering (AML) and know-your-customer (KYC) processes, and adhering to compliant marketing practices. By mastering these areas, you create a resilient framework that supports your fund's growth and reputation.

Fee and expense compliance

Fee and expense allocation is a critical component of fund accounting, involving the process of correctly assigning costs to either the fund, special purpose vehicle (SPV), general partner (GP), or the management company, as dictated by your specific fund structure and legal documents. This is a primary focus area for the SEC, and getting it wrong can lead to significant penalties.

Common allocation errors that can attract regulatory attention include, but are not limited to:

• Charging costs incurred when you start a PE fund to the wrong entity
• Misclassifying general overhead, such as office rent, as a fund expense
• Failure to offset management fees by income earned by applicable portfolio companies

Relying on manual tracking in spreadsheets is an outdated and error-prone method for managing these critical details. This approach makes it difficult to prove to auditors or regulators that your allocations are correct and consistent, which can lead to compliance risks.

Conflicts of interest and investor disclosures

Another pillar of compliance is managing conflicts of interest through what regulators call full and fair disclosure. This means moving beyond internal financial controls to embrace external transparency with your LPs.

Common examples of conflicts of interest include, but are not limited to:

• Allocating a particularly attractive investment opportunity sourced through deal flow to a newer fund instead of an older one
• Investing in multiple portfolio companies that transact with each other
• Hiring a service provider that is owned by or has a close relationship with the firm or its employees

Portfolio valuation compliance

Accurate investor disclosures depend on having defensible portfolio valuation processes. A process is considered defensible when it is based on a consistent, documented methodology—such as internal policies aligned with industry standards—and supported by verifiable data points. An incorrect valuation can lead to miscalculated management fees and misleading performance reporting, which is a significant compliance failure that can damage investor trust and attract regulatory action.

AML and KYC compliance

Funds in the private market face increasing scrutiny to ensure their operations are secure, transparent, and compliant with global regulations. At the heart of these efforts are AML/KYC programs. These processes are designed to prevent illicit financial activities and promote trust across the financial services ecosystem.

Together, AML and KYC form a critical defense for your fund's integrity and are a non-negotiable part of a modern compliance framework.

The SEC marketing rule

Transparency is key to building and maintaining LP trust. This includes providing accurate and timely quarterly statements and distributing annual audited financials to all investors. The SEC Marketing Rule governs how investment advisers can advertise their services.

Data security and material non-public information

PE professionals often gain access to material non-public information (MNPI) during portfolio monitoring. To prevent the misuse of this sensitive information, firms must have written policies and procedures, often called information barriers or "walls."

Record-keeping and audit readiness

In the world of compliance, if an action or decision isn't documented, it effectively didn't happen. A clear, accessible, and unalterable record of every transaction, decision, and communication is the foundation of a defensible compliance program.

Scaling compliance from emerging manager to established firm

Compliance is not a one-size-fits-all discipline; its demands evolve as a firm grows. The compliance foundation you build as an emerging manager will determine your ability to scale without accumulating operational risk and technical debt.

Building an institutional-grade compliance function with Carta

Managing modern PE compliance requires moving away from a patchwork of spreadsheets, email threads, and disconnected service providers. The complexity of today's regulatory environment and the expectations of institutional LPs demand a more sophisticated approach.

Author: The Carta Team

Carta's best-in-class software, services, and resources are designed to promote clarity and connection in the private capital ecosystem.