Registering with the US Securities and Exchange Commission will require private equity managers to document many aspects of their business and maintain that documentation in an easily accessible place so that it can be provided if regulators come knocking.
So what does this mean for private equity firms? Managers should have a strong understanding of the books and records required by the Advisors Act as well as other items that the SEC expects an advisor maintain.
As the 21 July registration deadline approaches, managers specifically need to consider the presentation and preservation of: corporate records, compliance records, portfolio management documents, client records and proxy voting materials.
An area of frequent lapses for private equity advisors is the failure to create written policies and procedures to document ongoing business practices and operations, according to a New York- based fund formation lawyer.
“The challenge is one of consistency. All the information is there, it just has to be organised in a more rigid process,” said the lawyer.
Perhaps the most important of the required records is the Form ADV, which consists of two parts. Part 1 is filed with the SEC and contains information about the advisor, including business, affiliations and assets under management.
Part 2 discloses more detailed information about the advisor, its potential conflicts, its business practices and the background of its key executive officers.
In the past, the manager provided ADV Part 2 to investors to comply with the SEC’s Brochure Rule, but Part 2 was not filed with the SEC.
SEC examiners closely scrutinise information managers have to report and the attention to detail will continue, with some new information made public. New rules require ADV Part 2 to be available on the SEC’s website.
Of course, those GPs with consistent, well documented policies have nothing to fear.