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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?

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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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CIC Sells 10% Logicor Stake to Blackstone Fund

The China Investment Corporation (CIC) is selling a 10% stake of in European warehouse firm Logicor Ltd to a real estate fund managed by The Blackstone Group. Furthermore, CIC also hired Blackstone to oversee and manage Logicor’s warehouses and logistic properties portfolio.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Fintech Affirm Raises $200 Million in Series E Led By Singapore’s GIC

Affirm Inc., a financial technology firm which provides instant loans to consumers as an alternative to credit cards for their online shopping, has raised US$ 200 million in a Series E round lead by Singapore’s GIC Private Limited, with participation from Khosla Ventures, Lightspeed Venture Partners, Spark Capital, Caffeinated Capital, and Ribbit Capital. The new infusion of capital brings the San Francisco-based company’s total funding to US$ 450 million and a reported valuation of US$ 2 billion.

The company is founded by Max Levchin, a co-founder of PayPal (part of the PayPal mafia, dubbed by the tech press). Max Levchin is also an advisory board member of the Consumer Financial Protection Bureau (CFSB) in the United States.

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CHANGE: Saudi Arabia to Re-Open Movie Theaters, PIF Inks MoU with AMC

The Saudi Arabian government is ending its 35-year ban on cinemas. Next year, the government will allow cinemas to open. This watershed moment provides opportunities for entertainment companies to invest in Saudi Arabia and the surrounding region.

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