On Monday Reuters announced that the SEC formed a “dedicated group to examine private equity and hedge funds” to “look at areas including how private equity and hedge funds value their assets, disclose their fees, and communicate with investors.” Hours later, Bloomberg reported that, “a majority of private equity firms inflate fees and expenses charged to companies in which they hold stakes.”
Well, that’s troubling.
It remains unclear whether these two announcements are connected — beyond the common Dodd-Frank root. Either way, this week has been a bit of a setback for private equity firms and their reputations. Whether investigators have become intolerant of private equity’s opacity or have noticed the evolving LPAs, GPs should prepare to have their books in order — or hire ex-SEC officials to run their compliance.
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Houlihan Capital is a Chicago-based valuation firm focused on providing high quality fairness and solvency opinions, portfolio valuations (level 3), and other transactional advisory services at a Midwestern price. Their clients include the world’s largest hedge funds, private equity funds, sovereign wealth funds and corporations.
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