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Private Equity Compliance

Author Jason A. Scharfman
Release Date: 2018/09/01
ISBN: 9781119479628
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Book Description

Develop and manage a private equity compliance program 

Compliance has become one of the fastest-growing areas in the private equity (PE) space. Mirroring trends from the hedge fund industry, recent surveys indicate that PE managers rank compliance as the single most challenging aspect of their business. Reports also indicate that PE compliance spending has rapidly outpaced other PE operating costs with recent estimates indicating that individual PE funds on average spend at least 15 - 20% of their operating budgets on this area. General Partners (GPs) have also significantly ramped up the hiring of private equity compliance related roles.

Private Equity Compliance provides current and practical guidance on key private equity (PE) compliance challenges and trends. Packed with detailed, practical guidance on developing and managing a private equity compliance program, it offers up-to-date case studies and an analysis of critical regulatory enforcement actions on private equity funds in areas including conflict of interest, fees, expenses, LP fun raising disclosures, and valuations.

•    Provides real-world compliance guidance  

•    Offers information that is tailored to the current compliance practices employed by GPs in the private equity industry.

•    Provides guidance on managing the compliance risks associated with cybersecurity and information technology risk

•    Serves as a PE-focused complement to the author's previous book, Hedge Fund Compliance

If you’re a private equity investor or compliance officer looking for trusted guidance on analyzing conflicts, fees, and risks, this is one reference you can’t be without.

Table of Contents

  1. Cover
  2. Preface
  3. CHAPTER 1: Introduction to Private Equity Compliance
    1. 1.1 INTRODUCTION
    2. 1.2 WHAT EXACTLY IS PRIVATE EQUITY?
    3. 1.3 PRIVATE EQUITY TERMINOLOGY
    4. 1.4 MANDATORY COMPLIANCE
    5. 1.5 VOLUNTARY COMPLIANCE
    6. 1.6 DISTINGUISHING INVESTMENT AND OPERATIONAL COMPLIANCE
    7. 1.7 HISTORICAL GENERAL PARTNER COMPLIANCE EFFORTS
    8. 1.8 TRANSITION TO INCREASED REGULATION OF PRIVATE EQUITY
    9. 1.9 WHAT IS PRIVATE EQUITY COMPLIANCE?
    10. 1.10 SUMMARY
    11. NOTES
  4. CHAPTER 2: Compliance Obligations of General Partners
    1. 2.1 UNDERSTANDING THE DISTINCTIONS BETWEEN GP-, FUND-LEVEL, AND PORTFOLIO COMPLIANCE
    2. 2.2 GENERAL PARTNER COMPLIANCE
    3. 2.3 GENERAL PARTNER BOARD SEAT OVERSIGHT CONSIDERATIONS
    4. 2.4 FUND-LEVEL COMPLIANCE
    5. 2.5 GP COMPLIANCE STRUCTURES
    6. 2.6 PRIVATE EQUITY CHIEF COMPLIANCE OFFICERS
    7. 2.7 SUMMARY
    8. NOTE
  5. CHAPTER 3: Limited Partner Advisory Committees and Other Boards
    1. 3.1 INTRODUCTION TO LIMITED PARTNER ADVISORY COMMITTEES
    2. 3.2 SOURCE OF LPAC RESPONSIBILITIES: THE PPM AND LPA
    3. 3.3 THERE IS TYPICALLY NO REQUIREMENT FOR AN LPAC TO EXIST
    4. 3.4 COMMON LPAC DUTIES
    5. 3.5 LPAC FORMATION CONSIDERATIONS
    6. 3.6 ARGUMENTS IN FAVOR AND AGAINST LPACS
    7. 3.7 SUMMARY
    8. NOTE
  6. CHAPTER 4: Valuation Compliance
    1. 4.1 INTRODUCTION TO PRIVATE EQUITY VALUATION
    2. 4.2 INTRODUCTION TO PRIVATE EQUITY VALUATION
    3. 4.3 GP VALUATION COMMITTEES
    4. 4.4 VALUATION POLICIES
    5. 4.5 VALUATION FREQUENCY
    6. 4.6 LPAC VALUATION OVERSIGHT
    7. 4.7 CASE STUDIES IN VALUATION
    8. 4.8 SUMMARY
    9. NOTES
  7. CHAPTER 5: Conflicts of Interest
    1. 5.1 INTRODUCTION TO CONFLICTS OF INTEREST
    2. 5.2 DEFINING A CONFLICT OF INTEREST
    3. 5.3 FUND FORMATION CONFLICT-OF-INTEREST DISCLOSURES
    4. 5.4 PREEXISTING INTERESTS AND THOSE ACQUIRED FROM OTHER FUNDS
    5. 5.5 GP EMPLOYEE OR AFFILIATE DIRECT INVESTMENTS
    6. 5.6 FRONT-RUNNING CONSIDERATIONS
    7. 5.7 RELATED-PARTY TRANSACTIONS
    8. 5.8 DEAL ALLOCATION
    9. 5.9 PLACEMENT AGENTS' CONFLICTS OF INTEREST
    10. 5.10 CASE STUDIES IN CONFLICTS OF INTEREST
    11. 5.11 CASE STUDY #2: CENTRE PARTNERS MANAGEMENT, LLC
    12. 5.12 SUMMARY
    13. NOTES
  8. CHAPTER 6: Fees and Expenses – Compliance Considerations
    1. 6.1 INTRODUCTION TO PRIVATE EQUITY EXPENSES AND FEES
    2. 6.2 WHY ARE FEES AND EXPENSES IMPORTANT TO COMPLIANCE?
    3. 6.3 TRANSACTION FEES VS. FUND-LEVEL FEES
    4. 6.4 TYPES OF FUND-LEVEL FEES
    5. 6.5 FEES AND PORTFOLIO COMPANY DIRECTORSHIP CONFLICTS
    6. 6.6 OPERATING PARTNER FEES
    7. 6.7 CASE STUDIES IN FEE AND EXPENSE MANAGEMENT
    8. 6.8 SUMMARY
    9. NOTES
  9. CHAPTER 7: Private Equity Compliance Technology, Business Continuity, and Cybersecurity
    1. 7.1 INTRODUCTION TO THE ROLE OF TECHNOLOGY IN PRIVATE EQUITY COMPLIANCE
    2. 7.2 REGULATORY FOCUS ON TECHNOLOGY COMPLIANCE
    3. 7.3 CYBERSECURITY COMPLIANCE IMPLICATIONS
    4. 7.4 DATA ROOMS
    5. 7.5 SUMMARY
    6. NOTES
  10. CHAPTER 8: Understanding Private Equity Compliance Documentation
    1. 8.1 INTRODUCTION TO KEY PRIVATE EQUITY COMPLIANCE DOCUMENTS
    2. 8.2 PURPOSES OF DOCUMENTING COMPLIANCE
    3. 8.3 BENEFITS OF DOCUMENTING COMPLIANCE
    4. 8.4 DISTINGUISHING LEGAL AND COMPLIANCE TERMS IN FUND OFFERING DOCUMENTS
    5. 8.5 KEY GP COMPLIANCE DOCUMENTATION
    6. 8.6 CASE STUDY: WL ROSS & CO. LLC
    7. 8.7 SUMMARY
    8. NOTES
  11. CHAPTER 9: Compliance Training, Surveillance, and Testing for Private Equity Firms
    1. 9.1 INTRODUCTION TO PRIVATE EQUITY TRAINING, SURVEILLANCE, AND TESTING
    2. 9.2 GROWTH OF TST
    3. 9.3 COMPLIANCE TRAINING
    4. 9.4 DISTINGUISHING COMPLIANCE TESTING AND SURVEILLANCE
    5. 9.5 TESTING AND SURVEILLANCE SCOPE
    6. 9.6 IMPLEMENTING COMPLIANCE TESTING
    7. 9.7 INCORPORATING MOCK AUDITS INTO TESTING
    8. 9.8 COMPLIANCE SURVEILLANCE IMPLEMENTATION
    9. 9.9 ANALYZING TESTING AND SURVEILLANCE DATA
    10. 9.10 CORRECTIVE ACTION
    11. 9.11 COMPLIANCE VIOLATIONS DO NOT NECESSARILY IMPLY GP OR FUND PROFITS
    12. 9.12 SUMMARY
    13. NOTES
  12. CHAPTER 10: Limited Partner Analysis of Private Equity Compliance Functions
    1. 10.1 A COMPLIANCE EVALUATION IS PART OF THE OVERALL DUE DILIGENCE PROCESS
    2. 10.2 GOALS OF INVESTOR COMPLIANCE ANALYSIS
    3. 10.3 DISTINGUISHING INITIAL VERSUS ONGOING COMPLIANCE DUE DILIGENCE
    4. 10.4 INITIAL COMPLIANCE DUE DILIGENCE PROCESS
    5. 10.5 INCORPORATING VENDORS INTO COMPLIANCE POLICIES
    6. 10.6 CASE STUDY: BLACKSTREET CAPITAL MANAGEMENT
    7. 10.7 SUMMARY
    8. NOTES
  13. CHAPTER 11: Interviews with Private Equity Compliance Professionals
    1. 11.1 BIOGRAPHY AND INTERVIEW WITH DR. THOMAS MEYER
    2. 11.2 BIOGRAPHY AND INTERVIEW WITH MATTHEW DEMATTEIS – INSTITUTIONAL LIMITED PARTNERS ASSOCIATION (ILPA)
    3. 11.3 BIOGRAPHIES AND INTERVIEW WITH CLAIRE WILKINSON AND LUDOVIC PHALIPPOU
  14. CHAPTER 12: Compliance Trends and Future Developments
    1. 12.1 INTRODUCTION
    2. 12.2 SPECIALIZED REGULATORY FOCUS ON PRIVATE EQUITY
    3. 12.3 FOCUS ON PRIVATE EQUITY FEE TRANSPARENCY
    4. 12.4 MIFID II AND PRIIPS PRIVATE EQUITY TRANSPARENCY CHANGES
    5. 12.5 REGULATORY FOCUS ON PRIVATE EQUITY DATA SECURITY
    6. 12.6 INCREASED SCRUTINY ON PRIVATE EQUITY RESEARCH DATA COMPLIANCE
    7. 12.7 FURTHER SCRUTINY OF POTENTIAL PAY-TO-PLAY VIOLATIONS
    8. 12.8 CHAPTER SUMMARY
    9. NOTES
  15. About the Author
  16. Index
  17. End User License Agreement
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