Client Alert: Private Equity Industry Under SEC Scrutiny

The SEC has launched an examination of the private equity industry. In particular, the SEC has taken interest in how private equity firms value their investments and report performance.

While the regulatory body emphasized that it doesn’t necessarily suspect any wrongdoing, its goal is to investigate whether securities laws have been broken. In light of these significant developments, alternative asset managers should consider the following best practices for providing transparency both to investors and to regulators:

  1. Reviewing existing policies and procedures for estimating fair value to ensure they comply with new FASB & IASB requirements. The latest changes became effective in January of 2012; click here to read more about these developments.
  2. Complying with industry standards, such as the International Private Equity and Venture Capital (IPEV) Valuation Guidelines and Investor Reporting Guidelines. Click here to read more about these developments.
  3. Reviewing the reporting needs of investors as outlined by the AICPA TIS 2220, which include items such as using a third party valuation expert to validate management’s fair value estimates.
  4. Demonstrating that performance data included in offering memorandums is compliant with GIPS standards.
  5. Providing performance attribution analysis to inform investors and potential investors the source of gains and losses.

As the alternative asset industry has grown and become increasingly important to corporate and public pension funds and their sponsors, Duff & Phelps professionals have provided independent valuation advisory services – including technical assistance with fair value estimates, validation, transparent reporting and other measures that help investors fulfill their fiduciary duty.

We look forward to discussing how the latest SEC developments may impact your business. Also, watch out for more information about a related webcast to take place next week; during this program, you'll hear from leading technical and regulatory experts and you'll have an opportunity to ask questions about the issues that matter most.

 
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