On February 9^th 2022, the SEC proposed new rules and amendments under the Investment Advisers Act of 1940 to enhance regulation of private fund advisors. Release IA-5955 runs to 341 pages and includes proposals that would require private fund managers to enhance their fee disclosure, inclusive of all direct and indirect fees and offsets at the fund and portfolio company level.

At Colmore, we have been following this regulatory update closely. For background, Colmore performs fee validation services, quarterly, on over 1,500 funds on behalf of our LP clients. We live and breathe fee data, and collect this information every quarter, to help LPs remodel & validate that the fees charged are within the terms of the Limited Partnership Agreements (LPA). Fee transparency is a fundamental starting point for the validation work we perform on behalf of our LP clients.

In July of 2021, we were able to share this perspective with the SEC, and we hope that our perspective was helpful in their consideration of this topic.

Given our unique and lived perspective on this subject, we wanted to share some initial thoughts and reflections on some of the key questions that might arise from this proposal:

1. Will enhanced fee disclosures be an additional burden and cost on GPs? Our data shows that when looking at the most recent vintages of funds, over 60% of the GPs reporting to Colmore already provide enhanced fee disclosures and templates. This is in the form of the ILPA fee template, or a Colmore adapted template. We find that GPs have robust software and administration partners which can automate this reporting, especially with the latest vintages of funds. The good news is that most GPs, according to our data, are equipped and capable of providing this depth of transparency already. Hence, the proposed requirements should not be a major burden on GPs given what we see today.
2. What will LPs do with all of this additional data? LPAs are highly negotiated and complex documents. In the absence of granular fee data, it is challenging for LPs to implement internal (or external) controls to validate that the fees are in line with the terms of the agreement. This proposal will empower LPs to not only collect the data, but also implement programs for better control and clarity. At the end of the day, mistakes happen, both in the form of overcharges and undercharges. We have been able to uncover millions of dollars of these errors through the greater facilitation of data. Fee transparency is not about a “GP Gotcha” by LPs, it is about working together to ensure accountability.

We look forward to continuing to playing our part in this ecosystem. We strongly believe that these proposed rules are an important step for the evolution of the private funds industry, and will help ensure alignment, control and clarity in private fund investments.

Ben Cook

CEO

Colmore, A Preqin Company

About Colmore

Colmore, a Preqin company, is a market-leading, technology-driven private markets investor services business focused on the Limited Partner and Allocator market. The business operates from four offices located in New York and Dallas in the US, and London and Birmingham in the UK. Colmore employs more than 200 professionals, with the business monitoring over 4,000 private market funds and 40,000+ holdings. For more information, visit www.colmore.com.