FCA study: PE takes shock hit on fee reporting

The regulator’s final report on the asset management industry will increase the regulatory burden on private equity firms, writes PERE's sister publication Private Funds Management.

UK private equity firms will be subject to new fee reporting guidelines issued by the Financial Conduct Authority to asset managers, despite being initially excluded from their scope.

In its final market report on the asset management industry, published on Wednesday, the UK regulator said private equity firms should report fees and charges to institutional investors using a template drawn up for retail asset managers.

Private equity firms were looped into the guidance in response to a public consultation on an earlier draft of the report that had excluded the industry, Tamasin Little, a regulatory partner at Reed Smith, told PERE’s sister publication Private Funds Management .

“There was a unanimous response to the consultation that private equity should use the same sort of template for disclosure to institutional investors as is being proposed for mainstream asset managers,” Little said.

The FCA said several respondents had criticized private equity funds, saying they were “a particularly opaque” part of the market. It added private equity funds have “complex structures,” which means “information about charges is often unclear.”

There is no timetable for when the fee reporting rules will take effect, as industry working groups will be set up to establish how best to implement the reforms. Private equity firms should be involved in these groups to ensure the resulting recommendations are suitable for the industry, Little said.

Some firms may also be required to provide investors with annual reports on governance and the “value for money” their private equity investments represent; the FCA is consulting on whether the requirement should be extended to publicly offered funds. This would mostly affect private equity firms with listed vehicles, said Little.

“Such an extension would require a minimum number of independent directors and impose personal responsibility for the relevant senior manager under the senior manager and certified person regime, which is due to replace approved persons,” Little added.

The Alternative Investment Fund Managers Directive already includes similar requirements.

Of the 37 asset managers involved in the market review, no private equity firms were called on to formerly provide data, but trade bodies such as the Alternative Investment Management Association did provide information.