The private equity sector and regulations around it are investigated by Nery Alaev.
The trade body for Private Equity (PE) in Europe has published new standards for disclosure in order to allay the fears of investors about issues such as fees and reporting.
I’ve decided to look into the news of this decision and why such a guideline of standards has been created.
The 2015 Professional Standards Handbook, produced by Invest Europe, outlines updated guidelines for fee disclosure – an issue that has arisen increased pressure placed by investors on PE managers.
On top of pressure from investors, the US Securities and Exchange Commission (SEC) has prioritised scrutiny of fees and expenses, which has led to some high-profile organisations being on the receiving end of fines for failure to properly disclose information about charges.
The guidelines aren’t mandatory, instead they recommend that best practices for fee disclosure are followed – it’s hoped that they are by Invest Europe’s members, who are obligated to follow the group’s six-point code of conduct.
The guidelines include:
- A “detailed breakdown” of all fees paid directly or indirectly by portfolio companies to the general partner (GP) and related entities or individuals
- The disclosure of management fee terms
- The differentiation of costs borne by the fund and those paid by the GP
- How fees received from portfolio companies will be treated
- Carried interest arrangements
Marta Jankovic, vice-chair of Invest Europe’s professional standards committee, said:
“Institutional investors demand high standards on issues such as responsible investment and fee transparency
“The rapid growth of the industry over the past decade implies that an increasing number of people are today employed by companies that are wholly owned or controlled by the industry”
Marta Jankovic’s comments imply an increased responsibility on firms to act in an ethical manner, given that the industry is growing.
In conclusion, the new guidelines may not be an obligation but they’re definitely a step in the right direction for Europe’s investment community.
Nery Alaev is the current Director of ESN Investments GmbH, which engages in acquisition and development of commercial and residential property in Germany and Austria.