Under the new chairman, Jay Clayton, the U.S. Securities and Exchange Commission seems to have shifted its focus from regulating private equity firms and advisers to individual misconduct. Over the past years, particularly under the term of Mary Jo White, the SEC strictly monitored private equity advisers, which ultimately resulted in these firms establishing new practices, hiring chief compliance officers, and ensuring transparency on fees for services and potential conflicts.
The rate of private equity investments has significantly increased over the past decade. In 2000, private equity advisers managed $700 billion, and in 2015 the figure jumped to $4.2 trillion. However, private equity advisers were not under the Commission’s radar until the enactment of the Dodd-Frank Act in 2010, which required private equity advisers to register with the SEC. The SEC’s Division of Enforcement also expanded in 2010, adding an Asset Management Unit to monitor the activities of private equity advisers, and the SEC Office of Compliance Inspections and Examinations (OCIE) established the Private Funds Unit to provide periodic examinations to increase transparency and identify any problems.
By 2014, the OCIE detected a number of deficiencies within private equity firms, such as “allocation of expenses, hidden fees, and issues related to marketing and valuation”, which led to a number of enforcement actions against private equity advisers. The SEC targeted the following issues:
- Advisers that receive undisclosed fees and expenses;
- Advisers that impermissibly shift and misallocate expenses; and
- Advisers that fail to adequately disclose conflicts of interests, including conflicts arising from fee and expense issues.
The increase of private equity investments prompted the implementation of regulations and enforcement actions during Mary Jo White’s term at the SEC. The Commission set out to ensure that private equity advisers complied with these regulations to protect the interests of investors. Actions were commenced against large firms, such as The Blackstone Group in 2015 for breaches of fiduciary duties resulting in a $39 million settlement. Enforcement actions such as these compelled private equity firms to implement stricter compliance measures.
Andrew Ceresney, former Director of the SEC Division of Enforcement, explains that “the increased transparency has fostered a healthy dialogue between investors and advisers on what sorts of fees are appropriate and who should receive those fees.” The SEC’s actions have increased the standard of transparency and reporting to protect investors. This standard has now been adopted by private equity firms, which is why the SEC’s focus has shifted towards other pressing issues – monitoring the actions of individual wrongdoers and protecting retail investors.
 Horney, Benjamin. (Nov. 17, 2017) “Lack of SEC Enforcement Doesn’t Mean PE is Off the Hook.” Law360. Available at: https://www.law360.com/securities/articles/986504/lack-of-sec-enforcement-doesn-t-mean-pe-is-off-the-hook. Accessed on Dec. 1, 2017.
 Ceresney, Andrew. (May 12, 2006) “Securities Enforcement Forum West 2016 Keynote Address: Private Equity Enforcement.” Securities Enforcement Forum West. p.1.
 Ib. p.2.
 List quoted from ib. p.3.
 Ib. p.6.