As general partners work to meet growing transparency demands, they need to be careful just how much information about their compliance programmes is leaving the firm, said participants in a compliance panel hosted by electronic communications compliance company Smarsh.
Many firms and fund advisors have been preparing compliance manuals and procedures prior to their registration with the US Securities and Exchange Commission. Naturally, limited partners are requesting copies to get familiar with their fund managers’ new programmes.
However, many compliance experts are cautioning their clients from disseminating too much information about the new programmes, as information released outside of what's set out in the partnership agreement could potentially expose firms to greater risk, according to the panel.
Information released outside of what's set out in the partnership agreement could potentially expose firms to greater risk
“Anyone should be able to come in, and sit down, and go through [compliance manuals] at any time. But sending it out is exposure you don’t want to have,” said Harold Kahn, president of technology, risk and research support company Gravitas.
Distributing compliance policies exposes firms to the risk of those policies being made available to non-investors, according to the panel. Instead, firms should make their LPs aware of their programmes through face-to-face meetings.
In addition to discussing the compliance process, the panel also highlighted a few areas that the SEC is targeting as they begin to investigate private equity firms, including how track records are marketed, the availability of co-investments, preferential treatment among firms’ LPs and documentation of fund expenses.
“I encourage everybody, before you register, look at the disclosure you have in your private placement memorandums regarding expenses that are going to be charged to the fund and match that up with what’s actually being charged,” said Ted Eichenlaub of ACA Compliance Group. “Are individuals going on golf outings and are they being charged to the fund? You know, you kind of laugh at some of this stuff but the SEC really does dig into the weeds on these kinds of things because they’re fund assets. And that’s what they’re trying to protect.”