Banning Facebook

Private equity firms that are registered with the Securities and Exchange Commission as investment advisors are required to keep a searchable archive of all business communications for five years. This certainly includes work emails, but the full scope of the rule isn’t entirely clear. In the age of social networking websites, chat and news sites that allow readers to comment on stories, the question of just how much digital communication needs to be archived gets complicated.

What about chat messages on a firm’s intranet? What about personal chat platforms like Google’s Gchat? What about messages on Facebook, LinkedIn, or microblogging service Twitter? 

Some GPs, particularly in the tech sector, have official Facebook and Twitter accounts for their firms.  Communications on those mediums, it would seem, would need to be archived. But what about personal Facebook and Twitter accounts? And if communications on these platforms do need to be archived, how would a firm do it?

Some registered GPs have banned use of these platforms at work altogether for fear of violating SEC rules. But a blanket ban is rare among registered firms. 

New Mountain Capital doesn’t restrict Facebook, Twitter or personal email at work. The firm relies on the fact that each employee signs off on a code of ethics and understands the ramifications of posting unauthorized things on those sites.

Oak Hill Capital also doesn’t restrict internet use, but does require all business correspondence go through Oak Hill’s email system, which is archived in accordance with SEC rules. No Gchatting about investment decisions is allowed.

Fund of funds Abbott Capital doesn’t allow chatting at work, but does allow the use of personal social networking accounts.

Compliance consultant Charles Lerner of Fiduciary Compliance Associates said that private equity firms have fewer and different risks than a traditional RIA that manages individual accounts. The real concern, he said, is how the RIA is communicating with its customers, and for private equity firms communication with investors in privately offered funds is limited and tends to go through just a few people at the firm.

 “Selling doesn’t happen over the phone,” he said. “You’re selling and communicating with investors at face to face meetings. Substantial individual and institutional investors that are qualified to invest in your fund are not basing their decision and gathering information over Twitter or Facebook. I think it’s a pretty small risk for a private equity firm.”

For those who want to be sensitive to any risks and err on the side of caution, they can review the acceptable terms of use for social networking sites during employee training, he said.