Monday, April 13, 2015

PEUvolution of SEC's Andrew Bowden

The gestation period for learning how to love private equity underwriters can be estimated from the conduct of the SEC's Andrew Bowden.  Consider his timeline.  Bowden rose to Director of the SEC's Office of Compliance Inspections and Examinations in May 2013.  A year later Bowden gave a tough speech to the Private Equity International (PEI), Private Fund Compliance Forum in New York.  He cited the SEC's findings on PEU fees and expense allocations to limited partners:

...we have identified what we believe are violations of law or material weaknesses in controls over 50% of the time.
He also cited the practice of charging hidden fees.  His tough talk got KKR to examine their practices and reserve $25 million for litigation expenses.  TPG took the other track of intimidating insiders with concerns about fees and expense sharing practices, potentially illegal.  Management's response to this person's concerns included:

... he would have “hunted” (the complainant) down and “gutted [him] like a carp.”…

... (the executive) exploded in anger; he told (the complainant) that he was being “foolish” and if he were in the same room with him at that moment he would “smack” (the complainant’s) head into a wall and “knock some fucking sense” into him.
I'm not which face of private equity turned Bowden into a fan.  Was it the "face our errors and make amends" side or the "expletive, gutting, knocking" side.  It's not clear but Bowden flipped, becoming a huge fan of private equity.  He stated in March at a conference at Stanford Law School:

And I reckon, it’s sort of interesting for me for private equity in terms of all we’ve seen, and what we have seen, where we have seen some misconduct and things like that, ’cause I always think like, to my simple mind, that the people in private equity, they’re the greatest, they’re actually adding value to their clients, they’re getting paid really really well, you know, if I was in that position, the one thing I would think to myself as I skipped to work was like just “Let’s not mess it up. You know, this is the greatest thing there, I’m helping people, I’m doing OK myself.” 

And so my view on the small ones is, I still think this is one of…I tell my son, I have a teenaged son, I tell him, “Cole, you want to be in private equity. That’s where to go, that’s a great business, that’s a really good business. That’ll be good for you.”
 And you won't be gutted like a carp. Remember son, compliance with the PEU boys pays well!