Throughout 2014, I couldn’t escape the feeling that we were always on the cusp of something bigger. It’s an odd sentiment, I know. Some really big stories broke in 2014, but I suspect many of these developments will kick into higher gear in 2015.
One of those big stories of course was Drew Bowden. The SEC chief inspector who courageously implied in a room full of CCOs in May that half of them would probably fail an SEC audit of their fund expenses and fees. It was a stern warning, but in the time to come we’re going to get far more. The SEC will release a full report on fees and expenses after completing a two-year sweep of newly-registered private equity firms that began in 2012. It wouldn’t be a terrible guess that the report will fundamentally change how GPs charge certain costs that they’ve passed on to portfolio companies or investors for decades. We’ve already seen this happen with The Blackstone Group, a pacesetter in the industry, after they vowed to stop charging accelerated monitoring fees in October, a controversial levy singled out by Bowden during the speech.
Then take fair value reporting. For years now we’ve heard CFOs gripe that audits are being conducted in a way that doesn’t sync with market practice. US auditors say the problem stems from the PCAOB, their own oversight body, forcing them to standardize their audit approach – which is a bad fit for the highly illiquid private funds space. But in late 2014 encouraging signs of change emerged: the PCAOB completed a consultation on fair value auditing that garnered responses from the NVCA and other trade bodies willing to point out the unintended consequences in Topic 820 others have ignored. If audits are to be improved in 2015, this is a promising first step.
Outside the US we’re witnessing China finally placing the finishing touches on its private funds regulatory regime, which many are hopeful will eclipse the sophistication of those built in the West. This is incredibly important for the industry: 2015 will be the first year the world’s second largest economy has a proper regime in place for private fund managers.
In Europe, we will finally see the precise impact of the AIFMD in 2015, which was at last implemented in July after five years of regulatory uncertainty for Europe’s GP community. Add in all the tax rumblings made in 2014 over anti-avoidance reform, treaty shopping and the possibility of a global FATCA, and there’s a number of ongoing developments we here at pfm will continue to track vigorously.
Of course 2014 was a pivotal year in its own right. And throughout the year we’ve assembled the best ideas for private fund managers to prepare for the many challenges ahead. This volume gives you a look back at many of those ideas, as well as presenting fresh perspectives on the best practices that will enable your firm to thrive come what may.