The SEC turns up the heat on private equity expense allocations

Abstract

Purpose

To discuss the US Securities and Exchange Commission’s (“SEC’s”) increasing focus on disclosure and conflict-of-interest problems arising from how private equity fund (“PE Fund”) managers allocate expenses between management and fund investors.

Design/methodology/approach

This article summarizes the background of this focus on expense allocations and, drawing from the recent SEC enforcement actions focused on this issue, and identifies the types of both expenses and disclosures that have caught SEC attention.

Findings

After spending the first two or three years post Dodd-Frank raising awareness of these issues, the SEC has begun to impose large fines over expense-allocation conflicts and disclosure issues.

Practical implications

It is imperative for PE Fund managers to retain counsel to review their fund offering documents, expense allocation practices, and compliance programs to ensure consistency with the SEC’s recent decisions on these issues.

Originality/value

Practical guidance from experienced financial services lawyers.

Citation

Lieberman, S. and Araneo, J.T. (2016), "The SEC turns up the heat on private equity expense allocations", Journal of Investment Compliance, Vol. 17 No. 2, pp. 35-38. https://doi.org/10.1108/JOIC-05-2016-0024