SEC inquiry targets PE asset valuation mechanisms
Private equity firms have been asked to disclose to US regulators information on how they value assets, as well as on areas including fundraising and fund formation, as part of an informal inquiry into the industry. The Securities and Exchange Commission (SEC) made its request last year, giving PE firms until the end of December to hand over the relevant documents.
The SEC has paid closer attention to private equity since the global financial crisis and news of this inquiry suggests it is scaling up efforts to police the asset class. The regulator now has an inventory of cases involving PE firms, The Wall Street Journal reported, citing a source familiar with the situation.
Asset valuation is a contentious issue and there have been cases in which private equity firms invested in the same portfolio company have assigned it different values. The SEC's letter asks for details that offer "support for valuations of the fund assets," and "documents setting forth a value for any assets owned by the fund" over the past three years.
Officials are also said to be studying how performance data is presented, potentially seeking to identify whether misleading valuations have been put forward during fund marketing activities.
The regulatory environment tightened in June with the adoption of registration requirements for private equity and hedge fund advisors as part of the Dodd-Frank Act. About 750 advisors are affected by the rule change - although some are already registered - which will see them disclosing information on investors and employees, assets under management, potential conflicts of interest, and activities outside of advising funds.
The registration system will not cover foreign advisers without US business licenses, venture capital fund advisers or advisers with less than $150 million in assets under management.
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