Private Equity Management Fees and Expenses: Avoiding Investor Claims and SEC Enforcement Actions

Lessons From Recent Claims and Penalties; Procedures and Disclosures to Improve Investor Confidence

Recording of a 90-minute CLE webinar with Q&A


Conducted on Tuesday, August 22, 2017
Recorded event now available


This CLE webinar will instruct counsel for private equity (PE) fund managers on the disclosure issues and conflicts of interest associated with fund fees and expense allocations. The panel will discuss recent SEC actions, and best practices in administration and reporting that will pass muster with investors and the SEC.

Description

The SEC’s findings from examinations of registered PE advisers revealed that the most common deficiencies were related to fees and expenses charged by managers of portfolio companies. Specific deficiencies included payments to consultants, shifting expenses during the fund’s life, allocation of expenses and hidden fees.

The SEC continues to focus on fees, expenses and conflicts of interest inherent in the PE manager role and has collected significant penalties from fund managers who fail to properly disclose fees, expenses and conflicts of interest to their investors. These SEC actions provide guidance to fund managers and their counsel regarding practices to avoid, and best practices for full disclosure.

In reviewing current or prospective fund investments, counsel to investors can use these enforcement actions 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.

Listen as our authoritative panel of regulatory attorneys reviews fund fee and expense allocation deficiencies and the specific practices which have been identified as problematic. The panel will discuss best practices for reporting fees and expenses and due diligence for investors evaluating current and prospective investments.

Outline

  1. Overview of SEC oversight and authority with respect to private equity funds
  2. Notable SEC enforcement actions on undisclosed fees and expenses
    1. Payments to consultants
    2. Shifting expenses during fund’s life
    3. Characterization of expenses
    4. Hidden fees
  3. Investor due diligence
  4. Best practices in formulating and disclosing PE management fees and expenses

Benefits

The panel will review these and other key issues:

  • What are the stated priorities of the SEC in examining fund manger’s fees and expenses?
  • What particular fee and expense practices has the SEC identified as deficient with respect to disclosure to investors?
  • What due diligence steps should investors take in light of the SEC audit findings?
  • What steps should funds take to review fee and expense practices to ensure investor confidence?

Faculty

Jason E. Brown, Partner
Ropes & Gray, Boston

Mr. Brown has extensive experience representing investment advisers to private equity funds, real estate funds, hedge funds, separate accounts and commodity pools. He also focuses on the representation of other investment management clients, including open- and closed-end mutual funds and their directors.

M. Alexander (Alec) Koch, Partner
King & Spalding, Washington, D.C.

Mr. Koch is a Partner in the Special Matters & Government Investigations practice group, resident in the Washington, D.C. office. From 2002 to 2016, he served as a Senior Counsel, Branch Chief, and Assistant Director in the Securities and Exchange Commission’s Division of Enforcement. During his time at the SEC, he supervised, conducted, and litigated investigations and enforcement actions relating to all areas of the SEC’s enforcement program, including matters involving broker-dealers, credit rating agencies, investment advisers, insider trading, public company accounting and disclosure, the Foreign Corrupt Practices Act, offering fraud, and microcap fraud. Prior to his departure from the SEC, he was a member of the Enforcement Division’s Broker-Dealer Task Force Steering Committee, which is responsible for developing and overseeing investigative initiatives regarding broker-dealers. 


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Banking & Finance Law Advisory Board

Irving C. Apar

Partner

Thompson Hine

Mark N. Berman

Adjunct Professor

Northeastern University

Willa Cohen Bruckner

Partner

Alston & Bird

Lawrence Kaplan

Of Counsel

Paul Hastings

Kevin Petrasic

Partner

White & Case

Laura D. Richman

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Mayer Brown

Robert M. Stern

Partner

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Partner

Stradley Ronon Stevens & Young

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