Private Equity Management Fee and Expense Allocation and Disclosures Amid Recent SEC Warnings

July 17, 2014

In late April 2014, the SEC revealed its findings from examinations of 150 newly registered private equity advisors. The SEC claims to have found illegal fees, improper disclosures, and weak compliance programs in the majority of firms examined. The agency plans to examine another 25% of new funds by year end. 

The most common deficiency cited by the SEC in allocation of fees and expenses to investors were payments made to operating executives who manage portfolio companies. Specific deficiencies identified by the SEC include payments to consultants, shifting expenses during the fund's life, characterization of expenses and hidden fees.

In reviewing current or prospective fund investments, counsel to investors can use the SEC audit findings as a road map for questioning fund managers about fee and expense allocations. Funds that do not satisfy investor questions or concerns face the risk of SEC enforcement activity and potential investor litigation. The audit findings also serve as a list of SEC red flags for investment firms.

Listen as the authoritative panel of finance attorneys reviews findings of the SEC regarding fund fee and expense allocation deficiencies and the specific practices identified as problematic. The panel will discuss best practices for funds to review current practices and due diligence for investors evaluating current and prospective investments.

Meet the Speakers

Ellen Kaye Fleishhacker
Arnold & Porter
Veronica E. Callahan
Arnold & Porter
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