SEC’s White takes aim at private funds

The US Securities and Exchange Commission’s increased oversight of private equity – a result of the Dodd-Frank Act – and a subsequent discovery that over half of registered private fund advisors may reportedly be charging unjustified fees to investors is a primary reason for a bigger SEC budget, the agency’s chairman Mary Jo White told lawmakers on Tuesday.

“Some of the common deficiencies from the examinations of these advisers that the staff has identified included: misallocating fees and expenses; charging improper fees to portfolio companies or the funds they manage; disclosing fee monitoring inadequately; and using bogus service providers to charge false fees in order to kick back part of the fee to the adviser,” White said during a House Financial Services Committee hearing on the agency’s 2015 budget request.

White didn’t offer any further details past her prepared testimony nor did lawmakers press her for details on the matter.    

The SEC’s 2015 budget request of $1.7 billion would allow the SEC to hire additional staff and undertake more examinations, White said during the testimony, adding that the commission’s inspections unit is “on track to complete its goal of examining 25 percent of these newly registered advisers by the end of 2014”. 

Since the effective date of Dodd-Frank, approximately 1,800 advisers to hedge funds and private equity funds have registered with the SEC for the first time.

During questioning, California Rep. Maxine Waters asked White whether or not levying user fees from investment advisors was a “scalable and usable” way for the commission to improve investor protection.

White’s response was that the SEC’s examination program was a top priority for the agency and that the SEC’s current resources isn’t close to what the SEC requires.

“In respect of user fee proposals that have been made in Congress, my priority is to have the funding to carry out my job which I do not have now,” said White.