PE managers grapple with compliance costs

Nearly 86 percent of private equity managers thought provisions of the Dodd-Frank Act would increase compliance costs for private equity funds, according to a survey conducted by accounting firm Rothstein Kass.

Compliance costs are in part being driven by private equity firms becoming more intricately involved with portfolio companies and their due diligence reporting, according to 82 percent of managers polled.

“Interest in more direct participation in portfolio company management emerged primarily from necessity, but the trend has continued to intensify even as uncertainty regarding exit strategies has started to diminish,” said Tom Angell, a principal in Rothstein Kass’ private equity practice.

Nearly 70 percent believe that private equity firms will more frequently use outside consultants to understand the shifting regulatory environment, also adding to increased costs.

Despite a number of more pressing challenges and associated costs, managers polled also acknowledged that a more stable economy and thawing capital markets were contributing to a general sense of optimism.

Nearly 80 percent of respondents indicated that there would be more attractive investment opportunities in 2011 than in 2010.

“Our 2011 survey showed strong fundraising intent, as you would expect of a sector in the early stages of recovery,” said Angell. “Roughly 30 percent of managers plan to increase AUM by 25 percent or more.”

Rothstein Kass surveyed 207 private equity managers in January for its Private Equity in 2011 report.