Digital Digest

Regulator eyes unicorns

Unicorn valuations have been added to the Securities and Exchange Commission’s hit list after the regulator observed a range of methodologies used to calculate them.
The regulator said this lack of uniformity has resulted in “significant differences” in outcomes across funds.

“They want to see some kind of a uniform valuation policy,” said a panelist at a webinar hosted by Voltaire Advisors.

Another participant, Rajan Chari, a partner at Deloitte, said it was important to reflect the market’s perception of the company during the valuations process. Unlike when it values established companies, a fund has to determine what a market participant would think, who those market participants are and what the ultimate exit for the investment might end up being.

SEC targets outsourced CCOs

Private funds managers using third-party compliance teams may be at increased risk of a regulatory exam under new disclosure requirements.
From October, outsourced CCOs must be named on Form ADV, which is used by private fund managers to register with the SEC.

The agency said the requirement will help it to identify all advisors relying on a particular service provider, and improve its ability to “assess potential risks” linked to using certain teams.

Compliance sources say this could increase the chances of firms that outsource being inspected, because the regulator relies on a risk-based approach to determine whether it will examine a firm – the higher the risk rating, the more likely an exam will take place.

EQT creates Luxembourg hub

The firm is creating a fund hub in Luxembourg to avoid Brexit-related uncertainty.
The firm said the move secured “the predictability needed to ensure a top-quality product and service level.”

“We are looking at ways of future-proofing every single part of EQT; consolidating the GP presence is one way,” said Peter Veldman, head of fund management at EQT.
“By having the hub in Luxembourg, we also secure that future funds are managed under the Alternative Investment Fund Managers Directive within the EU which is an important aspect for us. On balance, Luxembourg is the best long-term solution for EQT.”

The uncertainty caused the firm to “put the UK on ice” in the run-up to the vote in June.

Texas TRS to audit fees

The Teacher Retirement System of Texas is ramping up its private equity fees and expenses transparency efforts.

The $133.4 billion pension fund, which has 12 percent of its assets in private equity, plans to audit the fee data provided by its private equity fund managers, according to meeting materials.

TRS chief audit executive Amy Barrett said previously private equity fee transparency is an issue at the pension and nationwide.
During the fiscal year ended August 31, TRS paid $207 million in private equity carried interest.

TRS was the most successful US pension plan in the 2016 list compiled by the American Investment Council with a 15.4 percent annualized 10-year net return.

UK launches PFLP

A regime that will reduce the costs and administrative burden of operating a UK limited partnership came into force on April 6.

The Private Fund Limited Partnership, the result of changes to the 1907 Limited Partnership Act, was designed to bring the UK in line with other major fund jurisdictions.

One of the benefits of the regime is the inclusion of a ‘white list’ which details actions an LP can take without jeopardizing their limited liability.
PFLPs will not be required to file gazette notices of changes relating to the partnership’s business or its terms.

The wind-up process has also been simplified; LPs can now authorize a third party to wind up the partnership on their behalf if the GP has been removed (see p. 8).

Blackstone opens retail channel

Blackstone has entered into an agreement with three independent broker-dealers to launch its retail investing channel.

The firm, which manages $368 billion in assets, signed agreements with three IBD firms to provide real estate and hedge fund products to retail investors, according to a source familiar with the matter. The channel may include additional products, including private equity, in the coming year, the source added.

There are three more IBD firms that investment committee has approved but which have yet to sign agreements, the source added.

The move will allow retail investors to invest below the minimum commitment size required by traditional private equity products or institutional platforms.

The Institutional Limited Partners Association has released the second phase of its transparent reporting template for private equity firms. It focuses on developing best practice in reporting data to LPs and compliance with Limited Partnership Agreements. The first phase, which provided private equity firms with a standard reporting process for fees, expenses and carried interest, launched in January 2016.

The European Commission has started its review of the impact of the Alternative Investment Fund Managers Directive. It will survey alternative investment fund managers across 12 EU countries on experience in applying the AIFMD, impact on investors, impact on alternative investment funds and AIFMs in the EU and in third countries, and achievement of its objectives.

President Donald Trump ordered a review of regulators’ authority to label private equity firms and other non-bank financial institutions as risky institutions. Treasury Secretary Steven Mnuchin is responsible for the review, which will assess how regulators mark firms “risky”.

MJ Hudson, an alternative assets consultancy and law firm, will establish a Luxembourg Alternative Investment Fund Manager platform so it can continue operating client funds in Europe if there is a hard Brexit. It will resemble the firm’s UK Fund Management Solution, which functions as an AIFM for client funds.

Private equity firms should conduct robust due diligence on target portfolio companies to avoid inheriting liability for law-breaking prior to their acquisition, according to a law firm. International antitrust, export controls, anti-money laundering and anti-corruption law enforcement are priorities for the US government, Foley and Lardner said in a client note.

Global investment manager Neuberger Berman will offer private fund products in China. The firm is opening a wholly foreign-owned investment management enterprise in Shanghai, subject to registration with regulators, the firm said in a statement. Patrick Liu has been appointed as head of China. The firm follows UBS Asset Management and Fidelity, who already have WFOE licenses. ?