Private investment funds are likely to face increased regulatory scrutiny and litigation risk in 2016, not only based on the Securities and Exchange Commission’s focus on the industry but also due to transparency and compliance initiatives of limited partners and other market developments. We have highlighted several areas that should be on the top of every private fund sponsor’s list – and how to assess and manage the associated risks.
The public scrutiny on private equity fund sponsors has continued to intensify this month, evidenced by at least three recent events.
First, the government announced that it was probing performance figures at private equity funds: SEC Probing Private Equity Performance Figures. This focus on performance should not come as a surprise. Financial performance is what drives the industry. Moreover, the SEC has made it clear that private equity fund sponsors are a regulatory and enforcement priority. And if that weren’t enough, two separate academic white papers have raised questions about performance claims in the private equity industry. After the options backdating scandal a decade ago, the catalyst of which was an academic white paper, the SEC had no choice but to probe performance claims.