Pension funds and other big investors know that half of private-equity fund managers are ripping them off. The trouble is, they don’t know which half.
While the Securities and Exchange Commission has promised to pull back the curtain on PE industry, the agency won’t name misbehaving fund managers in an upcoming report on bogus fees and other PE shenanigans — rankling investors in those funds.
“The SEC can’t tell me who they have looked at and whether they examined those who have endorsed our principles,” said Kathy Jeramaz-Larson, executive director of the Institutional Limited Partners Association, which represents 300 plus investors with $1 trillion invested in private equity funds. “We’re going to pull together a statement on how to deal with this.”
At a minimum, Jeramaz-Larson said she’s going to recommend to the group’s members that they ask private equity firms for the results of their SEC review when they come to market with new funds.
The SEC’s refusal to name names is all the more galling to pension funds because its chief, Mary Jo White, has talked tough about the need for greater transparency in the financial industry.
“There is some irony here,” a pension director told The Post.
Public pensions, which are among the biggest investors in PE funds, were shocked to learn earlier this year that a preliminary probe found a “remarkable” level of cheating and other violations.
The SEC’s compliance director, Andrew Bowden, sounded the alarm in May 6 speech at a private equity conference, when he disclosed that half of the 150 funds examined by the SEC uncovered “what we believe are violations of law or material weaknesses in controls.”
The SEC started examining PE firms as required by the 2010 Dodd-Frank financial reform act. But for years, the super secretive industry — dominated by deal-making giants like Blackstone, KKR and the Carlyle Group — pushed hard to avoid regulatory scrutiny.
An SEC spokeswoman defended the agency’s decision to keep the names of individual funds and their managers private.
“We don’t provide the results of the examinations because they are not public,” the spokeswoman said. “It’s not like a lawsuit when you mount a defense. It’s an exam.”
She added that the agency would take steps to bring individual firms into compliance or, if necessary, report them to the agency’s enforcement division.
“In some cases, we will send a deficiency letter to the firm,” she said. “Or in a very bad scenario, we will refer the case to the enforcement division for an investigation.”
The Private Equity Growth Capital Council, the lobbying group for the private equity industry, did not return calls for comment.