Earlier this year, a commissioner with the U.S. Securities and Exchange Commission made a shocking revelation—the SEC found “violations of law” and “material weaknesses in controls” involving fees and expenses in more than half the firms it had examined.
Andrew Bowden, director in the SEC’s Office of Compliance Inspections and Examinations, rocked the industry with his assertion of widespread abuse. At the time, the industry waited to find out if the SEC was going to slap a big firm for charging improper fees and expenses, but it never really happened. The commission indeed found bad behavior at some smaller, lesser known firms, but no headline grabbing investigation has yet emerged.
[contextly_sidebar id=”gVBGMRVebYHVym30M2Har6r63CJpX4e1″]The excitement has died down a bit since Bowden’s speech in May, but at least one big LP continues to scour its portfolio for bad behavior.
The State of Wisconsin Investment Board, which as of Dec. 31, 2013, managed more than $100 billion in assets, has been reviewing its private equity portfolio in search of inappropriate fees and expenses, according to documents from the pension system made available to peHUB.
“The SWIB Private Equity and legal staff are addressing [these issues] contractually while also engaging in additional conversations and diligence with SWIB’s private equity advisors and other similarly situated investors,” the board memo said.
“Staff is also continuing to work with SWIB’s private equity consultant to address the issues of private equity fees that may be hidden from investors and the ‘invisible’ shifting of expenses from advisors to investors,” the memo said.
Vicki Hearing, a spokeswoman for SWIB, did not respond to requests for comment.
Other LPs, like the California Public Employees’ Retirement System, have performed exhaustive reviews of private equity fees and expenses. The Washington State Investment Board has an extensive process that tests key terms and conditions of investment agreements “to ensure that our investments are being managed in accordance with the agreements’ provisions,” Liz Mendizabal, spokeswoman for Washington State, told peHUB in a prior interview.
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