Tag: PEI Media

US Private Equity Fund Compliance Guide

If you are looking for something to read during the long Thanksgiving Weekend or a great holiday present, pick up a copy of the newly released The US Private Equity Fund Compliance Guide, Volume III. PEI Media just released this follow up that updates the original 2012 edition with the ongoing review and actions of the SEC.

Once you get your hands on the Guide, you should feel free to marvel at Chapter 8: SEC Examinations: How to Successfully Handle the Process. I’m sure the author of that chapter is brilliant. I’m also sure he is ruggedly handsome and kind to animals.

If you agree, I can offer you a 15% discount. Use the code AUT_COM3 when ordering.

compliance guide

TABLE OF CONTENTS:

Introduction

Section I: SEC focus areas

1. US regulatory developments and areas of increased SEC focus applicable to private equity fund advisers since 2012
Erik A. Bergman, Justin J. Shigemi and Reed W. Balmer, Finn, Dixon & Herling LLP

2. Must-know current SEC issues
Julia D. Corelli and Stephanie Pindyck-Costantino, Pepper Hamilton LLP

3. Valuation practices
James E. Anderson and Justin L. Browder, Willkie Farr & Gallagher LLP

4. Cybersecurity
Kari M. Rollins, Winston & Strawn LLP

5. Marketing in the US and EEA
Laura S. Friedrich and John Adams, Shearman & Sterling LLP

6. Due diligence and fundraising
David A. Smolen and Caroline Schimmelbusch, GI Partners

7. Form PF and Annex IV regulatory reporting requirements
Jeanette Turner and Paul Yau, Advise Technologies, LLC

8. SEC examinations: How to successfully handle the process
Doug Cornelius, Beacon Capital Partners LLC

9. SEC enforcement actions against private equity firms
Richard D. Marshall, Katten Muchin Rosenman LLP

10. Compliance officer liability: How to protect the compliance officer
Richard D. Marshall, Katten Muchin Rosenman LLP

11. Compliance roundtable
James Gaven, Welsh, Carson, Anderson & Stowe, Christopher Anderson,
KPS Capital Partners, Joel Wattenbarger, Ropes & Gray LLP

Section II: Appendices

1. Spreading Sunshine in Private Equity
Andrew J. Bowden, director, Office of Compliance Inspections and Examinations

2. Private Equity: A Look Back and A Glimpse Ahead
Marc Wyatt, acting director, Office of Compliance Inspections and Examinations

3. Conflicts, Conflicts Everywhere – Remarks to the IA Watch 17th Annual IA Compliance Conference: The Full 360 View
Speech by Julie M. Riewe, co-chief, Asset Management Unit, Division of Enforcement

4. Cybersecurity Examination Sweep Summary
National Exam Program Risk Alert issued by the Office of Compliance

5. Cybersecurity Guidance
Issued by the Division of Investment Management

6. OCIE’s 2015 Cybersecurity Examination Initiative
National Program Risk Alert issued by the Office of Compliance Inspections and Examinations (OCIE)

7. Examination Priorities for 2015
Issued by the Office of Compliance Inspections and Examinations

PERE CFO Forum 2013

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I spent most of yesterday in New York at PERE’s CFO Forum. I came to speak about the evolution and revolution of regulation in the private equity real estate industry. I thought I would share a few items.

The opening panel focused on the changing role of the Chief Financial Officer. A big change is the avalanche of regulations and business requirements. Compliance is expensive when you add together the direct costs, the indirect costs, and the lost opportunity costs. It’s a cost of doing business.

Fund managers are fiduciaries. Exceed your investors expectations.

There is the rise of the new “F” words: FATCA, FIRPTA, FBAR, and FCPA.

The second panel focused on valuations. They put forth three items to focus on during valuations: consistency, transparency, and independence. You should have a consistency in the process, regardless of product type or geography.

Transparency allows someone to see good work product to get to the final fair value. As with third grade math, it’s not just about getting the right answer, it’s also about showing your work.

Independence is important to show that the decision makers are not influenced by other factors in trying to reach fair value. A person compensated based on an increase in fair value should not sit on the valuation committee.

As markets recovered from the 2008 financial panic we entered an era of price discovery. Nobody was quite sure where pricing would be post-crisis. With rising interest rates, we may be entering a new phase of price discovery.

The third panel was on tax reform and tax policy developments. There is a general sense in Washington that there could be a major tax code reform. As a result some changes are being held up based on the possibility of becoming part of a larger piece of legislation.

  • Carried interest remains under attack. The latest is the Cut Loopholes Act S. 268.
  • Rate equalization would likely reduce the disparate treatment between capital gains and ordinary income.
  • Business interest expense could be reduced to avoid the tax incentive in favor of leverage over equity.
  • FIRPTA is being found to discourage inbound investments in real estate. One proposed reform is the Real Estate Jobs and Investment Act S. 1181 that would repeal IRS Notice 2007-55.
  • Entity choice and pass through legislation would impose corporate taxation on “large” pass through entities.
  • Like-kind exchanges could be tightened to limit the deferral to direct swaps and application of a stricter standard of “like.”

My panel was on regulation: evolution or revolution for real estate.

According to some informal polls, most of the audience had registered last year as a result of Dodd-Frank. A few had been registered prior and a few were not registered.

As much as we are dealing with dramatic changes in the regulatory environment, the Securities and Exchange Commission is dealing with a dramatic change in their oversight of investment advisers. Dodd-Frank moved thousands of small retail investment advisers from the SEC to state registration. In exchange, the SEC got lots more hedge fund, private equity  funds, and real estate funds. The SEC has as much to learn about private fund operations as we do to learn about SEC oversight.

 

Private Equity Enforcement Concerns

sec-seal

Bruce Karpati, chief of the SEC’s Enforcement Division’s Asset Management Unit laid out a clear picture of the SEC’s expectations and concerns about private equity in a recent speech. He was speaking at Private Equity International’s annual CFOs and COOs Forum. The speech was centered around five main questions.

Q1:  How has the creation of the Asset Management Unit impacted the Commission’s activities in the private equity space?

Q2: The Commission hasn’t traditionally brought many private equity enforcement actions. Do you expect that to change?

Q3: What are some of the Unit’s concerns about practices in the private equity industry?

Q4: You’ve spoke before about AMU’s Risk Analytic Initiatives. What are they and are there any currently under way in the private equity industry?

Q5: What can a private equity COO or CFO do to reduce the risk of inquiry by the Division of Enforcement?

It seems clear that the SEC is focused on two area: valuations and fees.

Private equity investments are inherently illiquid and therefore requires the fund manager to make judgment calls about pricing. Poor judgment can lead to poor valuations. Fraudulent judgment can lead to fraudulent valuations.

Fees and revenue generation are always a focus of the SEC for investment advisers and funds, whether private or public mutual funds. Private equity merely has some additional ways of generating revenue. It seems clear from Karpati’s speech that that SEC has been looking closely at those revenue streams.

  • The shifting of expenses from the management company to the funds including utilizing the funds’ buying power to get better deals from vendors — such as law and accounting firms — for the management company at the expense of the fund.
  • Charging additional fees especially to the portfolio companies where the allowable fees may be poorly defined by the partnership agreement.
  • Broken deal expenses rolled into future transactions that may be ultimately paid by other clients.
  • Improper shifting of organizational expenses, where co-mingled vehicles foot the bill for preferred clients.

Sources:

The US Private Real Estate Fund Compliance Guide

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires US advisers to private funds with at least $150 million in assets under management to register with the Securities and Exchange Commission as investment adviser. Venture capital fund managers are explicitly exempted from many aspects of registration. Real estate funds are not explicitly exempt from registration. For private real estate advisers, the key question whether to register depends on if the funds contain a sufficient amount of securities.

PEI Media’s brand new publication, The US Private Real Estate Fund Compliance Guide, is a detailed source of practical and insightful advice on SEC registration and compliance for private real estate fund managers who are registering for the first time, newly registered investment advisers, or experienced advisers who are seeking guidance on the latest regulatory reforms and changes.

Lead-edited by Charles Lerner of Fiduciary Compliance Associates, this publication addresses in detail key compliance areas including the registration process, marketing, custody, anti-corruption, setting up a compliance program, managing conflicts of interest, books and records, valuation and pricing, and advisory boards.

View the full table of contents and an extract (.pdf)

Update:

If you’re interested in the book, I have an offer for 20% off the list price. Email me at [email protected] and I can send you the code.

 

PEI’s Private Fund Compliance Forum

I’m attending Private Equity International’s Private Fund Compliance Forum. This is the third edition of forum. Last year focused on the steps leading up to registration with SEC as an investment adviser. This year, the forum is supposed to focus on what to expect in the first year of SEC registration and beyond.

I’m part of a session on Wednesday morning and another on Thursday afternoon. If you are one of the 200 or so attendees, stop me and say hello.

I may try to turn some of my notes from the sessions into blog posts.

Day One: Wednesday, May 2, 2012
8:45 – 9:00 PEI welcome & Chairman’s introduction
9:00 – 10:00
 Expert panel: Post-registration update: Where are we now?

• Adjusting to the evolving role of a CCO
• Effectively managing the resources of your compliance program
• How are reporting requirements impacting you?
• Potential liability for a CCO

Moderator: Roman A. Bejger, Chief Compliance Officer, Providence Equity Partners L.L.C.
Panel Members:
Christian McGrath, General Counsel & Chief Compliance Officer, GTCR LLC
Adam J. Reback, Chief Compliance Officer, J. Goldman & Co., L.P.
David Smolen, Chief Compliance Officer, Silver Lake
10:00 – 10:30
 A view from the SEC

This session will provide you with in-depth analysis of how the SEC is dealing with new registrants. SEC officials will answer your most pressing questions to help you ensure an efficient compliance program.Carlo V. di Florio, Director, United States Securities and Exchange Commission, Office of Compliance Inspections and Examinations

Interviewed by Nicholas Donato, Editor, Private Equity Manager
10:30 – 11:00 Networking Coffee Break
11:00 – 11:50
 Best practices for addressing anti-corruption issues

• How are the SEC and the DOJ handling recent anti-corruption cases?
• UK Bribery Act
– How will it apply to US foreign offices?
– What impact will it have on entertaining requirements
• FCPA
– Knowing who you’re doing business with?
– Handling the increased due diligence requirements
• AML
– What to expect when they go into effect

Moderator: Douglas N. Greenburg, Partner & Vice Chair of the Global Litigation Department, Latham & Watkins LLP
Panel Members:
Edina Cavalli, Director, Global Head of Private Equity and Principal Investments Compliance, Barclays
Paul Golding, General Counsel, Citi Infrastructure Investors
Kelly Nash, Compliance Counsel, General Atlantic
Paul Winters, General Counsel & Chief Compliance Officer, Denham Capital
11:50 – 12:50 Update on the new regulations and how they will impact you going forward• How will new Treasury Department requirements impact the private funds community?
• Dissecting the Volker Rule
• How the evolving landscape will impact the PE community in the years ahead

Moderator: Karen Barr, General Counsel, Investment Adviser Association
Panel Members:
Jason E. Brown, Partner, Ropes & Gray LLP
Jason Mulvihill, General Counsel, Private Equity Growth Capital Council
12:50 – 2:15 Networking luncheon
2:15 – 3:00 Improving your compliance program through the use of technologyModerator: Graham Winfrey, Staff Writer, PEI Media
Panel Members:
Jeff Faber, Chief Financial Officer, Trafelet & Company, LLC
Stephen Marsh, Founder & CEO, Smarsh
Scott Ring, General Counsel, Bessemer Venture Partners
3:00 – 3:45
Workshop A: The role of social media in the compliance worldParticipants:
Doug Cornelius, Chief Compliance Officer, Beacon Capital Partners, LLC
Gerry Esposito, Managing Director, CFO & CCO Newbury Partners LLC

 Workshop B: Post-Registration Impact on Foreign offices and doing business abroadParticipants:
Edina Cavalli, Director, Global Head of Private Equity and Principal Investments Compliance, Barclays
Alan K. Halfenger, Chief Compliance Officer, Bain Capital LLC
Greg Pusch, SVP, Director of Global Regulatory Compliance & CCO, HarbourVest Partners, LLC
3:45 – 4:00 Networking refreshments break
4:00 – 5:00 Mock Audit: Successfully maneuvering your way through an SEC exam

• What is the SEC looking for?
• How do you prepare for the SEC exam?
• Effectively communication with examiners
• Best practices for record keepingModerator: Ted Eichenlaub, Partner, ACA Compliance Group
Panel Members:
John P. Malfettone, Senior Managing Director, Chief Operating Officer & Chief Compliance Officer, Clayton, Dubilier & Rice LLC
Jim O’Connor, Chief Compliance Officer, Golden Gate Capital
Joel A. Wattenbarger, Partner, Ropes & Gray
5:00 – 6:30 Cocktail Reception and end of Day One

 

Day Two: Thursday, May 3, 2012
8:30 – 8:45
Continental breakfast CCO Think Tank (invite only)

This closed door session will allow CCOs to speak candidly about the issues impacting their office. Attendees can benchmark ideas and share best practices to help you gain solutions for common compliance concerns

Moderators:
James Gaven, Senior Compliance Counsel, Welsh, Carson, Anderson & Stowe
Jarlyth Gibson, Director of Risk Management and Compliance, Advent International
Alan K. Halfenger, Chief Compliance Officer, Bain Capital LLC
Jim O’Connor, Chief Compliance Officer, Golden Gate Capital
8:50 – 9:00 Chairman’s welcome
9:00 – 9:30
 Keynote interview – Working with the SEC
H. David Kotz, former Inspector General, Office of the Inspector General, United States Securities and Exchange Commission (2007-2012), currently Managing Director, Gryphon Strategies

Interviewed by Lois Towers, Principal, Pantheon Ventures
9:30 – 10:10 Conducting an effective annual review

• What does the SEC want you to look at?
• Reviewing your firms valuation policies and processes
• Conducting your review throughout the year versus all at once

Moderator:
Charles Lerner, Editor, The US Private Equity Fund Compliance Guide and The US Private Equity Fund Compliance Companion & Principal, Fiduciary Compliance Associates LLC
Panel Members
Nicholas Denton-Clark, Managing Director & Chief Compliance Officer, PineBridge Investments LLC
Kelly S. Hale, Compliance Officer, TA Associates
Danielle M. Perfetuo, Chief Compliance Officer & Counsel, Alcion Ventures
Robert E. Phay, Jr., Associate General Counsel & CCO, Commonfund
10:10 – 11:00 Insider trading and restricted lists

• Why every fund needs to have a restricted list?
• Overview of recent cases and its impact on the private funds community
• Usage of expert networks

Moderator: John Sampson, Senior Executive, Ernst & Young LLP
Panel Members:
Paula Bosco, Chief Compliance Officer, New Mountain Capital, L.L.C.
James V. Gaven, Senior Compliance Counsel, Welsh, Carson, Anderson & Stowe
Jarlyth Gibson, Director of Risk Management and Compliance, Advent International
Jason Ment, Partner, General Counsel & Chief Compliance Officer, StepStone Group LLC
11:00 – 11:15 Coffee Break
11:15 – 12:15 A new era of fundraising and marketing

• Assessing what rules apply and how they are applicable to your firm
• Effectively displaying performance: How do you display performance data in your advertising?
• Gaining pre-clearance for political contributions
• When and where you can advertise?
• Best practices for addressing gifts and entertainment
• Reporting and pre-clearance obligations for personal trading
• How should you be reporting performance: net vs gross
• How state and local lobbying laws are impacting your office

Panel Members:
Julia D. Corelli, Partner, Pepper Hamilton LLP
Kurt A. Krieger, Legal Director, Huntsman Gay Global Capital, LLC
Jason Ment, Partner, General Counsel & Chief Compliance Officer, StepStone Group LLC
Helane L. Morrison, General Counsel & Chief Compliance Officer, Hall Capital Partners LLC
12:15 – 12:20 Closing remarks
12:20 – 1:20 Closing Luncheon
12:30 – 3:30 Master Class: Effectively updating and maintaining your compliance programNow that the registration deadline is a thing of the past, many in the private funds compliance community are wondering what’s next. With greater requirements, comes greater responsibility. The maintenance and updating of compliance policies and procedures are vital to the success of every compliance program.

This master class will provide and in-depth overview of how to create and implement a successful and efficient compliance program from start to finish.

Nuts & bolts of putting together a compliance program
• Creating and updating a compliance manual to meet the needs of
the regulators, and also your firm
• Training your staff to ensure consistent application of compliance
policies and procedures
• Preparing for your annual review
• Formalizing the code of ethics

Effective recordkeeping
• Developing a uniform recordkeeping process throughout your firm
• Utilizing technology to ensure compliance
• Working with your LPs to attain proper documentation
• Maintaining the integrity of your reporting process

Ensuring compliance
• Establishing an internal culture of compliance
• Getting buy-in from senior management
• Effectively managing and delegating your resources
• Compliance best practices
• Establishing risk management tools to ensure greater compliance

For more master class information, and to register, visit: www.peimedia.com/pfcmasterclass

US Private Equity Fund Compliance Companion

If you are looking for a good guide to help your private equity compliance program, PEI Media’s US Private Equity Fund Compliance Guide is a good place to start. There have been a few changes since its publication in 2010. PEI Media has just published the US Private Equity Fund Compliance Companion to provide an update on the new and amended regulations, hoping to deliver some timely information before the March 30, 2012 registration deadline.

Charles Lerner of Fiduciary Compliance Associates was the lead editor and asked me to contribute a chapter. (That means I can offer you a discount of 20%. use the code: COMP_20)

Other contributors include:

  • Daniel Bender
  • Erik A. Bergman
  • Timothy M. Clark
  • Winston Chan
  • Peter Cogan
  • Doug Cornelius
  • Karl Ehsam
  • Kimberly Everitt
  • Daniel Faigus
  • Craig Friedman
  • Thomas S. Harman
  • David Harpest
  • Ebonie D. Hazle
  • Jeanette Lewis
  • Matthew Maulbeck
  • Leslie Meredith
  • Edward D. Nelson
  • John J. O’Brien
  • James T. Parkinson
  • Scott Pomfret
  • Michael Quilatan
  • Jay Regan
  • John Schneider
  • Justin J. Shigemi
  • Kate Simpson
  • Mark Trousdale
  • Joel A. Wattenbarger

PEI’s description.

 Featuring expert advice from over 30 compliance and legal professionals, this guide for chief compliance officers (CCOs) provides practical guidance on the legal and operational issues that registered investment advisers are required to comply with, and what the CCO role entails with useful checklists and practical tips.

The companion also features an exclusive roundtable discussion among a chief compliance officer, a head of investor relations and three attorneys. In this candid and informative session, these compliance experts discuss reporting net as well as gross performance results, limitation on general or public solicitations of investors, fundraising in new markets, limited partner due diligence and social media policy – it’s a discussion that will reveal the realities of the brave new world for registered investment advisers.

You can see the table of contents and read two chapters in the US PE Compliance Companion. (.pdf)

Private Fund Compliance Forum

Thousands of private equity firms are scrambling to meet the July deadline to register with the SEC. New disclosure rules are being proposed for private equity managers with more than $1bn in assets. PEI Media is producing its second annual PEI Private Fund Compliance Forum 2011 to help prepare you prepare for the new wave of regulations.

I will be speaking on a panel on the new rules governing fundraising. Here is the rest of the agenda:

Day One: Wednesday, May 3, 2011

8:50 – 9:00
PEI welcome & Chairman’s introduction

9:00 – 10:00
Expert panel:  Brave new world – Impact of SEC registration on finance and operations
– Creating a culture of compliance
– Getting buy-in from the GPs and other key stakeholders
– What does it mean to take on the role of a Chief Compliance Officer?
– Defining the function for your organization
– Budgeting for staff, outside consultants, technology
– Who do you appoint to be the CCO – CFO, GC or COO?

10:00 – 10:30
Keynote Speaker
Carlo V. di Florio, Director, United States Securities and Exchange Commission, Office of Compliance Inspections and Examinations

10:30 – 10:50
Networking break

10:50 – 12:00
Panel: The new form ADV 2 part 2
– Most important required elements for the brochure
– Addressing the  most challenges aspects i.e. confidential information and fees
– Handling updates and brochure supplements
– Effective delivery

12:00 – 1:00
Panel: CCO Clinic
What does it take to be an effective chief compliance officer?

1:00 – 2:15
Luncheon

2:15 – 3:15 – Workshop Session I

Workshop A: For new SEC registrants
– What to expect during the first year as a RIA
– ADV I and II forms
– Formalizing the code of ethics
– Custody rule compliance

Workshop B: For multi-strategy PE firms and  hedge fund affiliates
– Whether or not to have information barriers
– What  types of controls need to be put in place
– How do you prevent the misuse of information
– Conflicts of interest
– Flows of information

3:15 – 3:30
Refreshments

3:30 – 4:30 – Workshop Session II

Workshop C: Stepping up your internal compliance program
– Creating a firm compliance manual and training your staff
– Administering the terms of the limited partnership agreement
– Building a risk matrix and conducting an annual review
– Identifying risks; conflicts and fees

Workshop D: International Tax issues
– Recent tax changes and new regulatory frameworks in China, Australia, South Korea, India
– FATCA
– How do these changes impact returns?
– Modifying fund structures for tax efficiency

4:30- 5:30
Panel: What to do when the SEC knocks on your door?
– SEC hot buttons in an audit
– Disclosure issues
– Top 10 deficiencies for private funds

5:30 – 7:00
Cocktail Reception

Day Two: Thursday May 4, 2011

8:50 – 9:00
Chairman’s welcome

9:00 – 9:50
Panel: Update from Washington
– Hedge Fund Transparency Act
– Regulation of venture capital firms
– New initiatives on the horizon

9:50 – 10:35
Panel: The new due diligence regime – meeting requirements from LPs and regulators
– Presentation and documentation of track record
– Monitoring of trading activities
– Increased scrutiny around valuation
– Importance of integrity of reporting
– Compensation of operating partners

10:35 – 10:55
Coffee break

10:55 – 11:45
Panel: New rules governing fundraising
– Presentation materials and being compliant
– State procurement lobbying laws and their effect on raising money from public pensions
– Monitoring your employees’ political contributions•   Presentation materials and being compliant
– Coordination of global offering to US and non-US investors
– Monitoring your employees’ political contributions – prohibit vs. preclear?

11:45 – 12:40
Panel:  Effective and appropriate marketing materials
– Consider your audience – presentation to existing LPs, prospective LPs and portfolio companies
– Making sure that presentations are reviewed by compliance
– Interpreting rules governing marketing and advertising
– Web sites and other marketing materials
– Guidelines regarding talking to the press

12:40-1:15
Panel: Regulatory issues beyond Dodd Frank
– FCPA and UK Bribery Act compliance

1:15 – 2:15
Closing Luncheon

The US Private Equity Fund Compliance Guide

One of the struggles with implementing a compliance program for a private equity fund is that the Investment Advisers Act is targeted at retail operations dealing with relatively liquid investments. Neither fits well with the private equity model of institutional investors and large, illiquid transactions. Most of the guidance and discussion about how to implement a compliance program focuses on the retail side. Given the changes coming from Dodd-Frank, most private fund managers will need to register with the SEC as investment advisers.

Private equity firms are going to need some good guides to help them out. PEI Media just published The US Private Equity Fund Compliance Guide. It is a useful resource to private equity firms putting together a compliance program.

Since it was just put together this year, the guide includes most of the new laws and regulations coming out of Dodd-Frank as they relate to private equity fund compliance. Of course, given the huge slate of rule-making in the pipeline, the guide will start getting out-of-date. You need to start sometime and the regulatory framework will continue to evolve.

Charles Lerner of Fiduciary Compliance Associates took the helm as editor of the guide and farmed out the individual chapters to a talented group of contributors. Most chapters do a great job of trying to translate the regulatory regime of the Investment Advisers Act to the realities of a private equity fund manager. A few chapters come up short. They merely tack on a paragraph at the end of the chapter pointing out that much of the preceding is irrelevant for most private equity firms or fail to provide a meaningful discussion for private equity.

Some chapters do a great job of addressing the problems that are more closely associated with private equity. The “Side Letters” chapter does a great job putting those agreement in the context of potential conflicts and the requirements of the Investment Advisers Act. I would give the same praise to the “Identifying Potential Conflicts of Interest” chapter.

Overall, I found the guide to be a great resource in helping me to craft my compliance program. My copy is already getting filled with notes and annotations. The downside it that it’s expensive: $795.

You can take a look at the table of contents for the guide and see how it fits into what you are doing and whether it would be worth the price.