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Are Private Equity Investing Pensions Suffering from Stockholm Syndrome?

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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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Oman SGRF Contemplates $1 Billion Infrastructure Fund

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Oman’s State General Reserve Fund (SGRF) is in discussions on forming a US$ 1 billion infrastructure fund. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Norway’s GPFG Banned from Investing in 9 Companies Over Nuclear Weapons

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The recent false alarm caused by a state employee in Hawaii (who was not terminated and reassigned to a new position), triggering the Emergency Alert System message at 8:07 a.m. caused pandemonium in the state. After decades of failure in diplomacy between the United States and North Korea, the threat of a nuclear missile attack has grown since. The states of Alaska and Hawaii are the closest states to North Korea.

Besides the recent news in the world of nuclear missiles, Norges Bank oversees the management of the country’s sovereign wealth fund. The central bank has moved to ban nine companies from the Government Pension Fund Global. In addition, one company has been placed under observation. The Executive Board of Norges Bank’s decisions on exclusion were made on the basis of recommendations from the Council on Ethics. However, before moving to exclude a company, the central bank may consider other options, such as the exercise of ownership rights. In these instances of companies, the board determined that it was appropriate to use other measures in these cases.

The Council on Ethics’ recommendations to exclude:
Risk of severe environmental damage and serious or systematic violations of human rights
Evergreen Marine Corporation (Taiwan) Ltd
Korea Line Corporation
Precious Shipping PCL
Thoresen Thai Agencies PCL

Unacceptable risk of serious or systematic violations of human rights
Atal SA

Over involvement in the production of nuclear weapons
AECOM
BAE Systems
Fluor Corporation
Huntington Ingalls Industries Inc
Honeywell International Inc (already previously excluded)

Placed Under Observation
Pan Ocean Co. Ltd

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Sistema to Pledge Assets to Help Fund Settlement

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The Russian Direct Investment Fund (RDIF) is helping a settlement situation between two Russian economic powerhouses. In January 2018, Sistema, under a settlement, is mandated to pay Bashneft oil company, which is owned by energy behemoth Rosneft, 100 billion roubles (US$ 1.8 billion) by March 30, 2018.

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