Are Private Equity Investing Pensions Suffering from Stockholm Syndrome?
A number of public pension investors clamor for greater transparency but silently hesitate on pulling the trigger for U.S. state-regulated private equity laws. Are these accelerated portfolio monitoring fees a really big deal in the scheme of things?
For over two years, the U.S. Securities and Exchange Commission (SEC) with greater power and authority under the Dodd-Frank act, warned to the public that private equity buyout funds could be deceiving investors on undisclosed fees and questionable service provider arrangements. The SEC has invested in internal resources and has pursued the big names within the private equity world: KKR, the Blackstone Group, Apollo Global Management and now Wilbur Ross’ private equity firm. Each of these PE firms have agreed to pay fines.
Sample of Private Equity Firms Investigated by SEC Over Fee Disclosure
|Date||Defendant Firm||Violations||Disgorgement – USD||Previously Refunded / Distribute Back to Clients – USD||Interest – USD||Penalty – USD||Total Cost – USD|
|June 29, 2015||Kohlberg Kravis Roberts & Co. (KKR)||Violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7.||14,000,000||3,260,000||4,500,000||10,000,000||31,760,000|
|October 7, 2015||The Blackstone Group||SEC’s order finding that it breached its fiduciary duty to the funds, failed to properly disclose information to the funds’ investors, and failed to adopt and implement reasonably designed policies and procedures.||26,200,000||2,600,000||10,000,000||38,800,000|
|August 23, 2016||Apollo Global Management, LLC||Violated Sections 206(2) and 206(4) of the Advisers Act and Rules 206(4)-7 and 206(4)-8. Failed to reasonably to supervise the then-partner pursuant to Section 203(e)(6) of the Advisers Act.||37,527,000||28,800,000||2,727,552||12,500,000||81,554,552|
|August 25, 2016||WL Ross & Co.|
Source: SEC Data
It’s simple – top-quartile private equity firms could simply choose to do business in other jurisdictions, states and even countries.
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