Q&A: Regulatory hurdles

Required registration with the US Securities and Exchange Commission has driven that point home to many managers. To prepare for the 30 March 2012 registration deadlines, managers have found that many tasks are shared between the compliance and investor relations departments, including marketing material language and internal compliance policies.

Adam Weinstein, a director and controller of New Mountain Capital Group and chief financial officer of New Mountain Finance Corporation talks to PE Manager about the complexities of building an A team, and how compliance and regulatory demands are impacting the firm.

Has it become more difficult to run a private equity firm?

There are more requests from investors for information on portfolio company level details. It has been more time intense from an investor relations perspective, but has also given us the opportunity to interact with investors on a more regular basis than before.

We have seen a real shift in investor requests and while it takes a lot more time to service some investors, it is part of our job. In our industry, questionnaires and requests have increased substantially since two or three years ago because of the financial crisis and liquidity issues among the LP community. Investors want to see what you are doing and how you are doing it.

Has New Mountain Capital added staff recently?

From all sides, we have. As it relates to our compliance function, we hired a director of compliance in 2009 and she became the chief compliance officer earlier this year. We also brought two people on to work for her. Three years ago, we had a two person compliance team that was very much a shared function staffed by finance professionals. Now we have a three person dedicated team. We continue to add up and down the ranks at the firm generally on the deal professionals front as well.

Has the firm specifically added any back office staff to address these challenges?

We added a person in January to help with our private equity accounting quarterly process. We’ve taken the approach of having a lot of people involved, a team that can cross over and do many different things. It is important to have one person though that leads the effort and they need to be supported by that strong team of people. We continue to seek out and add talent as warranted to meet the increasing volume. Overall, we now have over 15 professionals in the operations, finance and compliance areas.

Is compliance taking up more time at the firm?
We registered our public effort, New Mountain Vantage, in 2008, and have operated the rest of the firm as if it was already registered. The compliance and regulatory regimes dictated that we need to be ready. Being registered, we’re more focused on training staff and formalising policies, but feel that we were always doing the right thing before.

Have compliance requirements changed the budget for the firm?

Outside of adding people, we did have to make some additional changes. We added technology to monitor trades, and monitor emails. We also had to budget for consultants that helped us with mock audits and additional outside counsel time.

How have regulatory reforms change the way New Mountain Capital does business?

There have been a lot of new requirements and we take them very seriously. We loop our compliance team in as part of our culture, plugging them into everything we do. We want to make sure we’re thinking of things right and maintaining compliant. We have added the compliance function into the different steps of communicating to the market and current investors for example quarterly letters. The regulatory environment has made everyone conscious of what you say and how you say it.

Has fundraising been impacted by these challenges? Is it more difficult to raise money?

New Mountain is not fundraising itself for another year or two. However, we assume that strong funds will continue to have an important role to play for limited partners.