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OCIE Chief Criticizes Private Equity Compliance Practices

Andrew Bowden, the SEC Director of the Office of Compliance Inspections and Examinations, cited several compliance issues observed in the private equity industry.  Mr. Bowden cited the unique “risks and temptations” and conflicts of interest inherent in the private equity model.  He criticized broadly worded limited partnership agreements that gave fund sponsors too much latitude to collect undisclosed fees and a general lack of supervision of GP activities. He said that the SEC is concerned about zombie funds, side-by-side co-investments, and weak compliance functions.  He also indicated that the SEC has identified fee and allocation deficiencies in over 50% of exams.  Mr. Bowden also warned private equity managers to review marketing materials to avoid misleading potential LPs.  Mr. Bowden also instructed firms to build an independent and empowered compliance function.
OUR TAKE: Mr. Bowden is calling out the private equity industry on weak disclosure and compliance.  Expect more examinations and enforcement actions. 


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