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Family Office to Tech Billionaires Dials Back What It Says on Ethics

(Bloomberg) — With money managers under increased pressure to watch what they say, Iconiq Capital, a multi-family office for Silicon Valley technology moguls, is dialing back the language it uses to describe its commitment to ethics. 

Iconiq, which is known for managing the fortunes of billionaires like Mark Zuckerberg and Jack Dorsey, scrapped language in its official customer brochure stating that the firm’s employees would conduct business in an “honest, ethical and fair manner,” according to a copy filed earlier this year with the US Securities and Exchange Commission. 

In addition, an earlier commitment to conduct business “with the highest level of ethical standards” was revised to read “in a manner consistent with” the firm’s fiduciary status. 

The revisions reflect increased SEC scrutiny of how private fund managers market their businesses to potential clients. Iconiq, which was founded by former Morgan Stanley executive director Divesh Makan, provides both family office and investment advisory services to its clients, including running private funds. It oversaw about $77 billion in gross assets including leverage at the end of last year. A spokeswoman for the firm declined to comment.

The SEC in December 2021 warned investment advisers, including private fund managers, not to use marketing-type language when preparing a newly required “relationship summary” intended to help retail investors better understand their services and fees. 

Managers should avoid touting their abilities or using superlatives in the relationship summary, the agency said, adding that some firms were improperly writing that they hold themselves to “the highest possible legal standard.”

‘Just Say Less’

There are also strict limits on what private fund managers can tell clients under the SEC’s new marketing rule that went into effect in November, said Jaqueline Hummel, a director of thought leadership at the ACA Group, a governance, risk and compliance adviser for financial services firms. 

Among other things, the rules discourage fund managers from making broad statements that can’t be backed up. And even managers who don’t have retail investors are following the guidance issued for the relationship summaries, Hummel said.

“It’s pretty clear that the SEC is increasing the intensity of both regulation and examinations for private fund managers,” she said.

Some private investment firms still employ lofty statements about their ethics. Ray Dalio’s Bridgewater Associates, for instance, says in its customer brochure that the firm commits to “the highest ideals of honesty, integrity and openness.” Seth Klarman’s Baupost Group says it strives for “professionalism, integrity, honesty and trust.” 

Others, like Citadel Advisors and Millennium Management just mention that they operate under a code of ethics.

It’s not uncommon for family office lawyers to fine-tune their disclosures — and there’s been a recent trend toward paring back language, said Joshua Rubenstein, a partner in the private wealth department at Katten Muchin Rosenman.

“Investment professionals can get hoisted by their own petard for saying something that’s inconsistent with what they used to say,” Rubenstein said. Instead, he added, the approach has become: “Just say less.” 

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