Chillin' out till it needs to be funded
The WSJ suggests that the SEC has sent out a request to PE funds including giants such as KKR & Co outside the ongoing insider imbroglio. The investigation is headed by Robert Kaplan who wants to pull up PE regulation to the niche hedgies have today under fire fromthe SEC for the last two years. The PE funds have to provide information regarding fund raising, fund formation, support for valuation of fund assets and any references setting value to any assets of the fund including agreements setting the value of assets.
One wonders how the 20% performance component of the fees which did not come into play for hedgies for lack of 2011 performance will be brought into scrutiny here. Issues of valuation are relatively dormant in PE as interim values are book entries till the investment is sold and the fee booked.
The agency is looking at “higher-risk” activities, such as potential conflicts of interest, he said and pointed to concerns about fees and other issues.
KKR posted a big earnings drop in the fourth quarter yesterdaya s it downgraded the value of its listed assets by using the MTM valuation and carried interest was down to $54.1 mln lower by $168 mln from last year December. By this Wednesday itself, its valuation and thus the carried interest had doubled in value from the one used for earnings according to the company. Even as realised cash carry ( from deal exits) rose 20% to $83 mln, its Economic Net Income based on beaten valuations dropped 2/3 rds or 60% to less than $286 mln. The PE company reports ENI ‘most probably’ as net profit realisable on the transaction before Capital gains.