Private Equity

Identifying Regulatory Vulnerabilities In Private Equity

Identifying Regulatory Vulnerabilities In Private Equity by PitchBook

Now that the vast majority of private equity firms must register with the SEC as registered investment advisers, the regulatory burdens are far greater than any time before. In fact, many LPs have introduced new processes to match the increased focus of the SEC on private equity investments. Middle market PE firms can meet the challenges of increased scrutiny by ramping up their compliance procedures.

For starters, private equity professionals should consider developing robust internal controls and ensuring their limited partnership agreements are fully transparent regarding fees and expenses. Fund managers are advised to form an internal advisory group to review and approve specific fund-level activities in accordance with LP agreements.

It is also critical for private equity firms to set the regulatory tone from the top. This means putting in place a chief compliance officer who takes the role seriously and is not simply in the position by default. This person should be well versed in all the rules and regulations impacting PE and must have the power to ensure the firm is doing (and documenting) exactly what it says it is doing.

A culture of compliance will be crucial in 2016. Private equity firms have spent years and years building their reputation by delivering solid returns to their investors. To have that taken away overnight because of a compliance breach—that would be devastating. It is one thing to hire smart and honest people, but it is quite another to have a tone and culture of compliance throughout the organization.

In this video, Jay Levy and Chris Aroh, partners in CohnReznick’s Financial Services Industry Practice discuss regulatory vulnerabilities in private equity and what firms can do to build a strong compliance program. Watch the video below.

Identifying Regulatory Vulnerabilities In Private Equity

This article represents the views of the author only and does not necessarily represent the views of PitchBook.

Private Equity

Comment (1)

  • Hasraj

    It is absolutely necessary that we need to work with people who are registered, as I am doing trading with OctaFX broker and the first thing I checked was regulation, I am very pleased that not only they are regulated, but also is an ECN company, so that further boost up my chances and allows me to be successful easily without facing any major trouble or difficulty at all in any situation, so that’s why I am able to work well.

    January 23, 2016 at 5:56 am


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