SEC Chairwoman Mary Jo White today testified in front of the U.S. House Committee on Financial Services, to discuss the Agency’s recent activities and 2015 budget request. As part of that overview, White suggested that recent examinations of hedge fund and private equity fund managers have uncovered some very unsavory activities. Namely, charging improper fees to investors and portfolio companies.
This is an issue we discussed earlier this month, upon news that the SEC had formed a dedicated group to examine private equity and hedge funds. Specifically, we wondered if certain private equity firms were collecting fees from portfolio companies that were not explicitly enumerated in their limited partnership agreements (i.e., fees they needn’t share with investors).
Mary Jo White didn’t identify any phantom fee perpetrators, not did she explain what the SEC plans to do about its findings. It might have helped if any Congressmen chose to ask her, but they largely focused on budgetary issues. Nonetheless, the fact that she discussed the issue so early in her testimony seems to indicate that this is an issue to which she is paying very serious attention (or she just figured that these newfound abuses would help support her request for extra funding).
Here is the relevant part of White’s statement (full comments here):
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