You would think, given how much effort they’ve put in to making as many Americans as possible eligble to pay fees to hedge and private equity fund managers, Jay Clayton and who he (probably futilely) hopes will be his soon-to-be-former colleagues (a group not generally given to great efforts) think very highly of those managers. Annoyingly, however, everywhere the SEC looks in those industries, it keeps finding things it doesn’t like, over and over. With every examination and every on-site inpection, new examples of the same deficiencies just keep popping up: nine different kinds of common conflicts of interest, four different kinds of common fee and expense issues, even two common kinds of insider-trading lapses.

The SEC said it had observed private equity and hedge fund managers inaccurately allocating fees and expenses that led to certain investors overpaying for services such as advice from consultants and due diligence on deals that failed…. It also found examples of managers overcharging clients for fees paid to lawyers and placement agents as well as for travel and entertainment expenses…. The SEC also found examples of investors paying excessive management fees and performance fees because private fund managers were failing to value their holdings in accordance with accounting rules…. Another area of concerns highlighted by the SEC was the misuse of material non-public information (MNPI). The regulator noted failures by private fund managers to address the risks posed by their employees interacting with corporate executives or other insiders at publicly traded companies that would have access to sensitive information.

Definitely sounds like the kind of vehicles people should be putting their 401(k) money into.

Risk Alert [SEC]
SEC censures private equity and hedge fund managers over fees [FT]
Jay Clayton, Would-Be Prosecutor, Says He’s Focused on His Current Jobs [NYT]

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Jay Clayton Paints His Masterpiece

An accredited investor definition that keeps their numbers about constant and decreases the likelihood of people coming crying to the SEC? It’s perfect.