In Private Equity International’s May special feature on legal issues affecting the industry, asset management partners Jason Brown and Joel Wattenbarger are quoted in an article titled “OCIE sharpens exam focus” on the increasing sophistication of the Office of Compliance Inspections and Examinations. The article highlights how GPs have improved their disclosure around fees and expenses in response to the SEC’s focus on the issue, though PE firms should still ensure their practices on this front are beyond reproach. “We’re seeing the SEC frequently test that level of disclosure now,” Mr. Brown. On-site examinations have become more efficient, notes Mr. Wattenbarger stating that “The SEC is rarely on-site for more than five days, and three days isn’t all that uncommon.”
A separate article in the legal special titled “How to navigate conflicts in GP-leds” discusses how the increasing number of GP-led fund restructurings can be fraught with conflicts. The article includes insights from Morri Weinberg, asset management partner and co-head of Ropes & Gray’s private funds group, who is noted in the piece as “a veteran of fund restructurings.”
“The primary conflict is between the sponsor and its own investors,” Mr. Weinberg states. “But then there are other constituencies at the portfolio level, including management teams, co-investors and lenders, potentially. In terms of navigating the minefield, a number of these constituencies may have to buy in to at least some aspect of the deal, and that takes a lot of thought in terms of putting together a potential transaction that is going to get the buy in required.”
In a separate special feature on the future of private equity, asset management partner Peter Laybourn discusses the future of the limited partnership agreement in an article titled “The changing face of the LPA.” The article notes that while industry groups desire more standardization, Mr. Laybourn outlines that “Fund sponsors believe they have unique approaches to investing, and that they know the secret sauce that needs to be reflected in the agreement.” Mr. Laybourn adds “Whether they feel they need different terms to give them flexibility to execute on their strategy, or their returns outperform relative to the market, thereby enhancing bargaining power and, potentially, justifying different compensation arrangements, I don’t see a single sponsor wanting a more standardized LPA. The LPs may want that, but I don’t see any movement while those interests differ as much as they do today.”
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