Monday, April 7, 2014

PEU Fees: Most Are Inflated

Bloomberg reported:

A majority of private-equity firms inflate fees and expenses charged to companies in which they hold stakes, according to an internal review by the U.S. Securities and Exchange Commission, raising the prospect of a wave of sanctions by the agency. 

More than half of about 400 private-equity firms that SEC staff have examined have charged unjustified fees and expenses without notifying investors, according to a person with knowledge of the SEC’s findings who asked not to be named because the results aren’t public. While some of the problems appear to have resulted from error, some may have been deliberate, the person said. 
More than half of PEU's erred or cheated in calculating fees.  That beats corporate executives who backdated roughly one third of executive stock options in their decade long cheating of stockholders, enabled in part by SEC Chair Arthur Levitt under President Bill Clinton.

PEU victims are heavy hitters, the independently wealthy, sovereign wealth funds, private foundations and public pension plans. 

PEU's love to market their outstanding returns before fees and expenses.   Uncle Sam carved out a free range for the PEU boys to operate the last thirty years.  The Carlyle Group hired ex-SEC Chair Arthur Levitt in part to keep this uncharted territory.

This leak is a shot across the bow of the PEU boys.  Note the "go forward" language in the piece:

The SEC’s action against Clean Energy Capital is probably just the first of several enforcement cases that will draw the boundaries of what’s allowed.

Look for the PEU lobbying group, which I've nicknamed PECKER, to respond vociferously.  They have an image to maintain, complete with illusions.

Both political parties, Red and Blue, love PEU.  Watch for details, on both charges and new rules.  I expect it there to be populist rhetoric and with corpora-fornicating implementation.  PEU profits equal political donations from their numerous buckets of money. 

Update 5-5-22:  The PEU "public pension savior" narrative may burst if one New York Assemblyman gets his wish for PEUs to reveal their contracts and fee arrangements with New York's public pension funds.