The US Securities and Exchange Commission (SEC) has helped to “significantly” increase transparency into private equity fees, expenses, and conflicts of interests, according to its enforcement director.
Speaking at the Securities Enforcement Forum Thursday, Andrew Ceresney said recent action had “prompted real change for the benefit of investors.”
“Even experienced investors can be defrauded if they lack transparency into the various fees, expenses, and practices.”Highlighting high-profile fines for Blackstone and KKR last year, Ceresney said the SEC would continue to “aggressively” monitor private equity firms for breaches of fiduciary duty, hinting at further regulatory action in future. Blackstone and KKR paid a combined $69 million last year for charges related to fee practices.
“We have the expertise and will continue to aggressively bring impactful cases in this space,” Ceresney said.
Ceresney said the charges that the SEC has brought against private equity firms so far have fallen into three categories: advisers that receive undisclosed fees and expenses, advisers that impermissibly shift and misallocate expenses, and advisers that fail to adequately disclose conflicts of interest.
“Blackstone breached its fiduciary duty by securing greater benefits for itself than the funds it advised, without properly disclosing and obtaining informed consent for the arrangement,” Ceresney said. “The message of this case is that full transparency of fees and conflicts of interest is critical in the private equity industry.”
Ceresney added that Blackstone no longer takes accelerated monitoring fees—the practice the SEC’s case against the firm focused on. While the SEC has yet to take a position on the propriety of the actual fees charged by firms, Ceresney said it would continue to advocate for transparency and awareness of those fees.
“Even experienced investors can be defrauded if they lack transparency into the various fees, expenses, and practices—which has been the case in the past,” he said. “There is thus little question that private equity is an appropriate focus for the SEC.”
Related: SEC Head Talks Hedge Fund, Private Equity Regulation & Taking the Guesswork Out of Private Equity Fees