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?

mastersoftheuniverse_PE

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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