If you were at the PEI Private Fund Compliance Forum in New York earlier this May, you'll probably recall the collective intake of breath after Drew Bowden delivered his now-notorious speech “Spreading Sunshine in Private Equity”.
Bowden disappeared pretty quickly after his speech, leaving in his wake a crowd of compliance officers exchanging raised eyebrows and nervous stares. The revelation that the SEC had found “violations of law or material weaknesses in controls” at half of the 150 funds recently examined by Bowden’s team was quite an eye-opener.
We’ve reported since that the SEC’s call for more transparency is already having an effect on how GPs communicate with investors around fund expenses.
But it's still not clear exactly what the SEC’s position is. Which expense allocations are considered safe, and which are considered unjustifiable in any circumstances? In light of Bowden’s warning, are you now wondering whether your firm should be picking up the check after dinner with a portfolio company executive? Compliance officers are no longer sure whether their current practice is in line with best practice.
With that in mind, we want to try and put this controversy in better context. In partnership with Pepper Hamilton and PEF Services, we’re asking CFOs and other industry professionals to tell us about their current fee and expense policies.
There's an important objective here: to provide GPs with a benchmark that allows them to compare their procedures with others. A firm that finds itself too far removed from standard practice can change its ways accordingly before arousing the curiosity of SEC inspectors. Equally, firms can remove charges typically eaten by the management firm from the budget if the industry consensus is that it should be treated a fund expense.
But in order to compile these results, we need your help. Rest assured that all responses will be treated with absolute confidentiality; we will not identify, in any way, the firms that contribute to this process.
The survey shouldn’t take longer than 15 minutes or so. And in return for your time, we'll send you a complimentary copy of the results, as well as making a $5 donation to UNICEF. The cut-off date for responses is September 5th.
The tough thing about compliance is you never really know where your blind spots are until something goes wrong. That’s why CCOs are usually quick to share their approach and rule interpretations, as a way of reaching an industry consensus on new regulations and enforcement actions. On fees and expenses, the time for that is clearly now.