Read a private equity prospectus, offering memorandum, limited partnership or subscription agreement closely and you’ll quickly learn why these funds resist public scrutiny like vampires run from sunlight.
As I detail in my recent book, How to Steal A lot of Money—Legally, these documents are replete with outrageous, damning disclosures. Most egregious are the disclosures that (1) every investor in these funds may be treated differently, e.g., certain investors will receive fee, transparency and liquidity preferences which will detrimentally impact other investors; and (2) the fund manager may engage in myriad forms of enriching self-dealing which may harm investors.PROMOTED
As problematic as these disclosures should be to any rational investor, wealthy investors often are willing to gamble a limited percentage of their savings in PE funds that promise (and more-often-than not don’t deliver) market-beating returns. Wealthy investors are routinely provided with prospectuses before they invest, as the federal and state securities laws require. Fund prospectuses contain details on investment objectives, risks, conflicts of interest, strategies, performance, fees, and fund management.
For any given PE fund, hundreds or thousands of prospectuses are distributed to wealthy investors globally, as well as to consultants and advisors to the well-heeled. These investors and intermediaries are not forewarned that “trade secrets” are included in these documents—proprietary business information which the investor may not lawfully discuss or disclose to anyone. To the contrary, PE managers count on wealthy investors and intermediaries discussing and recommending their costly funds to others. That’s a key element in PE marketing schemes. To my knowledge, no wealthy investor or intermediary has ever been sued for simply disclosing the contents of a PE prospectus. There are no true secrets here—just ugly business practices which wealthy investors often choose to overlook.
Public pensions, which are subject to state Freedom of Information or public records laws, are supposed to be the most transparent of institutional investors. The investment of public monies is supposed to be open to public scrutiny and accountability.
Further, unlike wealthy investor discretionary savings, public pension assets secure retirement promises made to middle-income workers. These investors, aka workers, cannot afford to gamble their retirement assets and would never knowingly consent to many of the unsavory features of PE investments disclosed in the prospectuses.
Read the rest of the article here. Edward Siedle,
Pension forensics expert and record-setting whistleblower award
winner, is a former SEC attorney, investment banking and securities
industry professional, and longtime Forbes writer. He is the nation's
leading expert in forensic investigations of money managers and
pensions, focusing upon excessive and hidden investment fees and
risks, conflicts of interest and wrongdoing. He was named as one of
the 40 most influential people in the U.S. pension debate by
Institutional Investor Magazine for 2014 and 2015. His preliminary
report on his forensic investigation of STRS, The
High Cost of Secrecy, was released June 7, 2021.
