• July 21, 2017

    A Roadmap and Recommendations for Private Equity Managers Facing an SEC Examination (Part One of Two)

    Examination by the Securities and Exchange Commission is a fact of life for registered investment advisers, including private equity funds, but in recent years, the SEC’s Office of Compliance Inspections and Examination has ramped up its examination efforts, in quantity and scope. Accordingly, managers today must be as prepared as possible, and at all times, for the inevitable inspection. At a minimum, to ensure the examination process runs as smoothly as it can and firms avoid potential enforcement action, private equity fund managers should continually assess their compliance programs for any deficiencies, review relevant SEC examination priorities and internal compliance policies and procedures for adequacy, and develop an action plan ready for implementation the moment they’re notified about an impending exam. This article, the first in a two-part series, explains the types of examinations the SEC conducts on private equity fund managers, events that trigger exams and pre-exam preparations firms should undertake. The second article in this series continues exploring pre-exam preparations and details best practices for getting through the actual on-site visit. Read More »

  • July 21, 2017

    Assessing the Tax Landscape for Private Fund Managers: An Interview with EisnerAmper’s Simcha B. David

    Private fund managers have long been accustomed to the myriad regulatory and compliance requirements they must adhere to as a consequence of their business operations. Managers may be, however, less inured to the new tax rules that are continually proposed, debated and implemented and that they must also remain abreast of, and in compliance with—from FATCA to partnership audit and management fee waiver rules to new U.S. Internal Revenue Code Section 385 regulations and Section 871(m) updates. Private Equity Legal & Compliance Digest recently sat down with Simcha B. David, a tax partner and member of EisnerAmper’s Financial Services Group, to discuss the changing tax environment for private fund managers, the biggest issues they face and how to address them advantageously. Read More »

  • July 21, 2017

    Practical Ways Private Equity Managers Can Implement and Take Advantage of Blockchain Technology (Part Two of Two)

    Blockchain technology was initially developed nearly a decade ago to underpin and support the cryptocurrency bitcoin, but increasingly, the finance industry is exploring blockchain’s potential uses in their own right—in particular, the technology’s ability to provide secure, internet-based updates and deliver cost and efficiency savings to back-office functions. Private equity managers, however, have demonstrated more tentativeness than their industry counterparts in warming to blockchain technology, in part due to uncertainty about its purpose, use and reach. This article, the second in a two-part series exploring the applicability of blockchain to the private equity industry, addresses potential challenges to adopting blockchain and best practices for optimizing its implementation. The first article in this series explained blockchain technology, its uses and benefits. Read More »

Legal Proceedings & Laws

  • July 21, 2017

    Private Equity Fund Manager Faces Sanctions for Borrowing From Funds Without Express Investor Disclosures, Though Funds Were Repaid

    On June 29, 2017, the Securities and Exchange Commission sanctioned a registered investment adviser and its chief executive officer for improperly borrowing money from the RIA’s three private equity funds and causing the funds’ general partners to not make timely capital contributions. All told, the SEC determined that the firm misappropriated nearly $10 million during a three-year time period until a new chief financial officer and chief compliance officer ascertained the borrowings were not authorized by the funds’ governing documents, and the firm repaid their borrowings. Notwithstanding their redress, the SEC sanctioned them. This article summarizes the SEC’s allegations. Read More »

  • June 23, 2017

    Legislation Update: Assessing the Impact of the CHOICE Act on Private Funds Managers

    On June 8, 2017, the House of Representatives passed the Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs Act, known as the Financial CHOICE Act, a bill intended to dismantle and replace the 2010 Dodd-Frank Act’s financial services industry reforms. The CHOICE Act’s scope is sweeping in nature, and if implemented, the regulation would, among other things: grant banks deemed ‘healthy’ relief from certain regulatory requirements like stress tests, so long as they maintain minimum leverage ratios; repeal the Volcker rule, a Dodd-Frank provision banning banks from proprietary trading and severely curtailing their ability to sponsor or invest in hedge funds or private equity funds; strip the Consumer Financial Protection Bureau of its powers to write rules and supervise firms; repeal the Financial Stability Oversight Council’s authority to designate firms as systematically important financial institutions subject to stricter rules; and modify capital rules to allow banks more flexibility in how they guard against ‘operational risks.’ Although almost everyone agrees the bill will not become law—it needs 60 votes to pass in the Senate unless the “nuclear option” is exercised to alter Senate rules, an improbable course for regulatory legislation—aspects of it could be implemented by the Trump administration. This article summarizes the provisions of the CHOICE Act anticipated to have the greatest impact on private equity managers. Read More »

  • June 9, 2017

    Pair of Enforcement Actions Shows SEC Scrutinizes Forms ADV for Both Major and Minor Misrepresentations

    Last month, the Securities and Exchange Commission entered two separate orders instituting administrative and cease and desist proceedings and imposing sanctions against two registered investment advisers and their founders for inconsistent or false statements disclosed in their Forms ADV. Although the facts underlying each action are distinct, taken together, they show just how meticulously the SEC reviews each of advisers’ Form ADV representations—on their face, as compared to prior and later Form ADV filings and against outside information and research. This article summarizes the SEC’s allegations in each enforcement proceeding. Read More »

Conferences & Seminars

  • July 21, 2017

    Enhancements to Reps and Warranties Insurance Programs Drive Increased Adoption By Private Equity Firms in M&A Transactions

    Mergers and acquisitions are fraught with risks—from buyers being outbid to the deal falling apart before closing to issues that went undiscovered during due diligence rearing their heads after close. As markets continue to evolve, solutions to help PE managers mitigate these risks evolve as well. Representations and warranties insurance is one such solution. Although customarily considered beneficial to sellers, purchasing RWI also can be advantageous for acquirers. According to the panelists of a recent webinar hosted by Alex Kasdan, senior managing director at DelMorgan & Co., as a result of a confluence of market factors, the use of RWI by PE firms has grown substantially over the past three to four years. This article highlights the key points of the webinar, including what circumstances are driving the growth in PE firms’ use of RWI, how to establish an RWI policy, the due diligence process and which contingencies policies typically cover. Read More »

  • July 21, 2017

    Setting up Shop in Dubai: Fund Structures, Distribution and Regulations

    Private equity is a truly global business, with PE managers looking pole to pole for investment opportunities and investors. One geographical region that offers scores of at least the latter, and potentially the former, depending on a firm’s investment strategy, is the Middle East. A host of factors, such as low asset management penetration, a large number of wealthy prospects and a regulatory regime that encourages both investors and investment managers to confidently participate in the market, converge in the region to create a unique investment proposition, and as the economic and financial center of the Middle East, Dubai is the ideal locale to access these opportunities. The Dubai International Financial Centre—a special economic zone created in 2004—working in conjunction with the Dubai Financial Services Authority, has sought to modernize its regulatory regime to create a more conducive ecosystem for Middle Eastern capital to remain in the Middle East via funds located in the DIFC. As those efforts have begun to bear fruit, resulting in a near doubling of the number of registered funds in the economic zone over the past 12 months, K&L Gates recently hosted a seminar entitled, “Funds & Structures in the Dubai International Financial Centre,” to discuss the regulatory environment and demographics that make the center an appealing option for managers looking to grow their AUM and what they can expect from setting up a fund in the DIFC. This article summarizes the highlights from that seminar most relevant to PE fund managers. Read More »

  • June 23, 2017

    SEC Outreach Program Briefs Advisers on Updates to Agency Priorities and Hot Topics

    The Securities and Exchange Commission often acknowledges the challenging role compliance professionals at registered investment advisers play on the regulatory stage, noting that CCOs, in particular, represent a “primary player in the safety, stability and integrity of the industry.” Although CCOs can seem a bit part in the overall business of a private fund—Commission officials noted facetiously that compliance is rarely a profit center for firms—the agency has said that when it promulgates rules, issues guidance or admonishes firms, it attempts to counterbalance the unique demands the compliance function faces in always-changing regulatory and market environments, especially when against a potentially unsympathetic in-house backdrop. As part of the SEC’s ongoing attempt to improve communications between itself and the firms it oversees, and to provide guidance and assistance to compliance personnel on the forefront of implementing the agency’s rules and regulations across a firm, the SEC’s Compliance Outreach Program recently hosted a conference in which agency officials across various departments, specialties and geographic locations discussed the agency’s current priorities, the examination program, the use of data analytics, cybersecurity and certain issues specific to private funds. This article, the first in a two-part series, highlights key insights from the conference regarding the SEC’s increased transparency initiative, how the SEC is working internally and with other regulators to decrease duplicative oversight, and the national examination program. Part Two will review panelists’ discussion of cybersecurity, data analytics and regulatory issues specific to private funds. Read More »


  • June 23, 2017

    Survey Lays Out Concerns, Practices For Private Equity Firms Conducting Cybersecurity Due Diligence on Portfolio Companies

    According to recent surveys, there were 781 data breaches at U.S. companies in 2015, and the average cost of each was $3.79 million. Such sobering statistics show that data security has become a fact of doing business, vital to ensuring business continuity and protecting a company’s information assets. In the realm of M&A, cybersecurity concerns have become a critical issue, concluded West Monroe based on the results of its latest survey analyzing private equity partners’ and corporate executives’ cybersecurity due diligence practices in M&A transactions. “A target’s cybersecurity infrastructure—or lack thereof—can affect deal prices, and at times determine whether a potential acquirer goes through with a deal at all.” The report found that acquirers rely on “vigorous due diligence” to protect themselves from security lapses at potential targets, and that due diligence practices and procedures are rapidly expanding and improving. This article summarizes key takeaways for private equity managers. Read More »

  • May 12, 2017

    More Family Offices Sidestepping Private Equity Allocations to Achieve Greater Control and Lower Fees Through Direct Investments

    Direct investments are not new. Family offices have long made direct investments in operating businesses, real estate properties and other asset classes. What is new, however, is that less-than-stellar returns, and fees that cut into those already lower returns, have spurred even more family offices to reevaluate their allocations to third-party investment firms. Although family offices still allocate to private equity, direct investment undeniably is encroaching upon firms’ cut of the pie, given the lure of exercising complete control over an investment, eliminating fees and increasing profits. This article discusses the main reasons behind the current trend of direct investments by family offices, how family offices source these deals, the benefits and drawbacks, and steps private equity managers can take to continue to attract family office allocations. Read More »

  • May 12, 2017

    Bain & Company Report Analyzes The Current Environment Around Deals, Exits, Fundraising and Returns; Identifies What Challenges Lie Ahead

    While other alternatives, notably hedge funds, of late have had performance struggles impacting their ability to raise assets, private equity funds have not suffered the same fate. In fact, by nearly any metric, 2016 was a solid year for the asset class. Fundraising remains robust, with investors clamoring to increase their allocations, and exits are normalizing after the wild swings of the post-financial crisis years. Returns continue to meet, or even exceed, investor expectations. Interestingly, though, dry powder has reached record levels, and asset prices are high, presenting GPs with the formidable challenge of maintaining performance expectations set in the past few years. A recent report by Bain & Company, entitled “Global Private Equity Report 2017,” discussed private equity funds’ performance in 2016 across various metrics, including exits, fundraising and returns as well as what’s in store for the industry in 2017 and beyond. This article summarizes the relevant aspects of the report. Read More »

People Moves