The allocation of fees and expenses continues to be a pain point for chief compliance officers, said experts at a panel at sister publication Private Equity International’s 2019 Private Fund Compliance Forum in New York.
“In my past three years at the firm every single exam I worked on at least one expense wasn’t being allocated the way that the senior management thought it was being allocated. Fees and expenses remain the number one issue,” one private fund lawyer said. The lawyer went on to say it is the issue most consistently scrutinized by the Securities and Exchange Commission.
Documentation is crucial, panelists said. “The biggest culture change in private equity is moving to a documenting mindset,” one chief compliance officer said. “Even if you have a paragraph on file saying you did something two years ago, even three sentences on why something was allocated two years ago, that’s gold.”
Documenting everything extends to compliance testing, delegates noted. SEC exams are easier to handle if you have a document to hand examiners, even if it’s only a few sentences.
More broadly, single-person compliance teams face prioritization challenges. One CCO explained the importance of communicating with your firm and having a “tangible discussion” about how the role should be focused.
“I went to them and said ‘here’s my 200-item to-do list and here’s the two that I’ve gotten to so far. Is this really how you want me to be spending my time?’ If you want me to be the highest paid trade clearer [or] non-disclosure agreement checker in the market, that’s great, but I don’t think that’s why you brought me in here,” the CCO said.
The Private Fund Compliance Forum continues today in New York.