What’s Really Going on with PE Firms’ Fees?

by Pepper Hamilton LLP
Contact

Pepper Hamilton, PEF Services, PEI Create Benchmark to Review Practices

PHILADELPHIA (November 18, 2014) — Pepper Hamilton LLP, a multi-practice law firm that represents private equity clients throughout the life cycle of an investment fund, recently partnered with PEF Services and PEI to conduct a survey of 104 U.S. alternative fund managers to examine certain fee practices. The survey came on the heels of an announcement by Andrew Bowden – Director of the SEC’s Office of Compliance Inspections and Examinations (OCIE) and head of its National Exam Program – that nearly half of the funds recently reviewed by the SEC were in violation of the law to some degree.

The goal of the survey – “Fees and Expenses 2014: A PFM Benchmarking Survey” – was to create a benchmark to compare and review managers’ practices about having the funds they manage bear certain types of fees and expenses. The survey enables firms to compare practices and, if it finds it is not consistent with standard practice, modify its procedures before piquing the curiosity of SEC examiners. Additionally, firms may decide to avoid fees and expenses that should be treated as a fund expense or absorb those that should not.

For example, as a result of the upturn in SEC registration, many fund managers have hired attorneys or compliance consultants. However, then the argument arises over who pays for registration. Investors argue that it is a firm expense, but many firms argue it is actually a fund expense. The results of the survey show that many firms have conceded that registration is, in fact, a management firm expense. Costs associated with examinations, however, have not been so uniformly absorbed.

“The environment in which fund managers must operate currently is about as challenging as any since the inception of the private funds industry,” said Julie Corelli, partner and co-chair of Pepper Hamilton’s Funds Services Group. “Today’s combination of market values, competition for investment opportunities, external pressures from investors, internal pressures for talent and succession, regulation and regulators’ enforcement mentality are pretty unique.

“We helped to spearhead this survey with PEF and PEI because overall, there is very little in the way of any formal guidance on which kinds of expenses should be fund expenses and which shouldn’t,” Corelli continued. “There is only the ‘one-size fits all’ guidance and it is all high-level. One of the hopes of this survey is to highlight nuances that every fund CFO and CCO must manage. A key takeaway from the survey is that the need for crystal-clear disclosures and fund agreements is more apparent than ever.”

“One of the things we heard from our clients is that there is not a lot of guidance for CFOs with regards to handling the allocation of expenses and the charging of fees. This survey provides them with a benchmark that they can use when making those decisions,” said Anne Anquillare, co-founder and CEO of PEF Services, a fund administrator to small and emerging private capital funds.

“We also believe that the survey will not only help educate the industry but also the regulators and their enforcement arms as well,” Anquillare continued. “The private equity industry is very diverse, and the difference between small and large funds is huge. Regulatory authorities by their very nature need to be broad-brushed, and I believe that the survey will help to sensitize them to the differences between large and small firms so that we can avoid unintended consequences that could hurt the industry.”

Full results of the survey are available here.

About PEF Services
PEF Services is fund administrator to over 125 small and emerging private capital fund managers, including early and later stage venture capital, debt, real estate, special purpose vehicles, growth capital, buyouts, multistage and fund of funds, among other strategies. Our services include bookkeeping, preparation of financial statements, capital management (capital calls, distributions) and working with auditors and tax preparers. We have a national reputation for our work with SBIC funds. Our proprietary web-based software facilitates the collection and dissemination of information and reports to clients and their investors. PEF Services undergoes an annual SSAE 16, SOC 1 audit to insure our controls and systems meet or exceed industry standards. You can learn more at our website.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pepper Hamilton LLP | Attorney Advertising

Written by:

Pepper Hamilton LLP
Contact
more
less

Pepper Hamilton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.