A THOROUGH UNDERSTANDING OF PRIVATE EQUITY

RETOUR SOMMAIRE

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2010

PERSPECTIVES FOR THE INDUSTRY

4.4

New regulatory issues

As the financial crisis has exposed a series of vulnerabilities in the financial system in Europe and in North America, this has led to a debate on increased transparency and regulation for all significant actors in financial markets, including private equity.

4.4.1

In the United States

In the United States the first half of 2009 brought forth several statements and initiatives re- garding regulation of the private equity industry and more broadly alternative investments. Treasury Secretary Timothy Geithner has proposed regulatory reform to address systemic risk, consumer and investor protection, elimination of gaps in current regulatory structure, and international coordination 62 . Thus, the Private Fund Transparency Act of 2009, introduced by Senator Reed in June 2009, would amend the Advisers Act to require investment advisers to private funds who manage assets in excess of $30 million to register with the SEC regarding the maintenance of books and records, custody of fund assets, compliance policies and procedures, advertising, and the examination of financial and other records by the SEC. A number of private equity’s larg- est players, such as the Carlyle Group, the Blackstone Group or KKR, are already registered with the SEC. With the Treasury Department, President and both houses of Congress actively pursuing increased oversight of the alternative asset industry, it is inevitable private equity fund man- agers will be required to publicly disclose information that in the past was considered privi- leged information, although not a number one priority. Besides, the current market sentiment, which is driving transparency across a broad spec- trum of structured products including private equity, as well as calls for players to show their hand more fully, have raised the bar on investor reporting, performance fee analysis, independence of audit and administration and improvement in the overall corporate govern- ance culture. LPs are namely looking for more frequent and more detailed reporting, many conducting quarterly reviews on their portfolios. It is likely, with increasing sophistication and variation in the investment model and a wider investor base, that the need to disclose will drive alternative and private equity players to outsource more of their non-core activity to administrators and depositaries who can manage data, deliver independence and produce clear and concise reporting on a diverse range of geographically spread investments.

4.4.2

In Europe: the AIFM draft directive

B ackground On April 2nd 2009, the G20 leaders issued a declaration aimed at strengthening the financial system. In particular, they agreed to extend regulation and oversight to all systemically impor- tant financial institutions, instruments and markets 63 .

62 Source: Fredrikson & Byron, P.A. “Government Attention on Private Equity Could Mean Changes for the Industry” by K. Lis Holter, Timothy R. Nelson & Leigh-Erin Irons, 2 April 2009 63 Source: G20 London summit, “The Global Plan for Recovery and Reform”, 2 April 2009

4.4

A thorough understanding of PE | page 77