Private Equity Avoids the Regulatory Limelight
The SEC this year has kept up a steady stream of actions against private-equity firms
By Chris Cumming
Evidence is building that the Securities and Exchange Commission has moved on from the era of trying to reform private equity through enforcement actions.
The SEC last week released its strategic plan for the next four years, which offers an important window into how the commission views the markets and its role as regulator and enforcer.
The plan is heavy on efforts to protect retail investors and adapt to changing technology, including issues like improving cybersecurity and tracing initial coin offerings. But it dedicates almost no time to private markets, institutional investors, or fee and expense abuses, areas that were often highlighted as priorities under the previous SEC regime.
Instead, the SEC is focused on ways to protect retail investors, a point Jay Clayton has repeatedly emphasized since taking over as the regulator’s chairman last year. Goals in the new plan include making more investment options available to individual investors and stamping out misconduct, such as penny-stock frauds, that harms them.
The SEC also wants to better understand new market risks and investment products and identify rules that are outdated.
The agency’s plan reflects a turn private-equity firms and lawyers say has been apparent for more than a year. The SEC’s examinations program and the regulations around private equity all have remained in place, but the agency seems to have moved away from its former practice—as many in the industry perceived it—of penalizing conduct it considers abusive as a way to send a message to the whole industry.
The SEC this year has kept up a steady stream of actions against private-equity firms over things like pay-to-play violations, fee disclosures and conflicts of interest, and issued its first-ever penaltyover a secondary sale. It also has fined firms over more routine violations, like failing to file an annual form. But compared with the enforcement actions it issued several years ago, the penalties have been smaller and the actions announced with less publicity.
The SEC may be changing tactics simply because it thinks the reform push has already succeeded. Many firms have improved their disclosure of fees or simply given up controversial practices, such as accelerated-monitoring fees, that the SEC didn’t like. Lawyers who negotiate fund terms say limited partners have become much more savvy in pushing back against fees and demanding better disclosure, which reflects the attention the SEC has brought to these issues.
But for now, the SEC seems to be comfortable letting LPs mostly look out for themselves. And if they can stay away from penny-stock scams, private-equity firms should enjoy a couple of years of lighter regulation.
Evidence is building that the Securities and Exchange Commission has moved on from the era of trying to reform private equity through enforcement actions.
The SEC last week released its strategic plan for the next four years, which offers an important window into how the commission views the markets and its role as regulator and enforcer.
The plan is heavy on efforts to protect retail investors and adapt to changing technology, including issues like improving cybersecurity and tracing initial coin offerings. But it dedicates almost no time to private markets, institutional investors, or fee and expense abuses, areas that were often highlighted as priorities under the previous SEC regime.
Instead, the SEC is focused on ways to protect retail investors, a point Jay Clayton has repeatedly emphasized since taking over as the regulator’s chairman last year. Goals in the new plan include making more investment options available to individual investors and stamping out misconduct, such as penny-stock frauds, that harms them.
The SEC also wants to better understand new market risks and investment products and identify rules that are outdated.
The agency’s plan reflects a turn private-equity firms and lawyers say has been apparent for more than a year. The SEC’s examinations program and the regulations around private equity all have remained in place, but the agency seems to have moved away from its former practice—as many in the industry perceived it—of penalizing conduct it considers abusive as a way to send a message to the whole industry.
The SEC this year has kept up a steady stream of actions against private-equity firms over things like pay-to-play violations, fee disclosures and conflicts of interest, and issued its first-ever penaltyover a secondary sale. It also has fined firms over more routine violations, like failing to file an annual form. But compared with the enforcement actions it issued several years ago, the penalties have been smaller and the actions announced with less publicity.
The SEC may be changing tactics simply because it thinks the reform push has already succeeded. Many firms have improved their disclosure of fees or simply given up controversial practices, such as accelerated-monitoring fees, that the SEC didn’t like. Lawyers who negotiate fund terms say limited partners have become much more savvy in pushing back against fees and demanding better disclosure, which reflects the attention the SEC has brought to these issues.
But for now, the SEC seems to be comfortable letting LPs mostly look out for themselves. And if they can stay away from penny-stock scams, private-equity firms should enjoy a couple of years of lighter regulation.
Published in: https://www.penews.com/articles/private-equity-avoids-the-regulatory-limelight-20181015
See more at: Morisberacha.com
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