PRIVATE%20EQUITY%20FUND%20REGISTRATION

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• PRIVATE EQUITY FUND REGISTRATION

BEING A PAPER PRESENTED AT THE PRIVATE EQUITY
FUND REGISTRATION SEMINAR NOVEMBER 14, 2013
BY C.E. NWUDE
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Outline

• Introduction
• Global changes in Private Equity/ Hedge Fund
  regulatory landscape
• SEC requirement for registration authorization
  of Private Equity Fund Managers
• SEC requirement for registration authorization
  Private Equity Funds
• Reporting other requirements for Private Equity
  Funds
• Conclusion

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Introduction

• Private Equity seek to provide equity financing
  for companies not quoted on an exchange, and
  covers a wide range of business, from small
  venture capital firms to large portfolio
  companies.
• Structurally, it operates as a wholesale market
  in many jurisdictions comprising institutional
  investors and financially knowledgeable
  individuals.
• Prior to the financial crisis of 2007 and 2008
  private equity like other hedge funds were
  unregulated because it is assumed that
  practitioners are knowledgeable enough to
  negotiate deals and conduct due diligence before
  attempting to invest.

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Global changes in regulatory landscape

• Changes seen in global regulatory landscape in
  Private Equity/Hedge Funds came about in response
  to the financial crisis. Though the crisis was
  triggered by the serious deficiencies in
  underwriting and disclosures of sub prime
  mortgages but its spiral effects on the other
  segments of the financial market had far reaching
  effect. In the US, the Dodd Frank wall Street
  Reform and Consumer Protection Act 2010
  introduced new regulatory regime to Private
  Equity/Hedge Funds.
• The Act requires advisers to private funds with
  more than 150million in asset under management
  to register with the US SEC as an investment
  adviser with an additional requirement to design
  and implement a compliance program and designate
  a chief compliance officer.

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Global change in regulatory landscape contd.

• The European Union directive on alternative
  investment fund managers (AIFM) which became
  effective in July 2013 imposed a wide range of
  requirements on private fund managers doing
  business across the EU in the following areas
• Capital Requirements
• Reporting and disclose to regulators investors
• Conduct of business (remuneration guidelines,
  conflict of interest)
• Marketing, e.t.c.

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The Nigerian Case

• In Nigeria, the 2010 PENCOM reform guidelines for
  the regulation of investment in pension fund
  assets i.e section 5 211 provides a window for
  pension fund assets to be invested in Private
  Equity Fund.
• This gave impetus for the creation of the new
  rules on private equity funds by SEC. However,
  for registration and authorization of of Private
  Equity Fund Manager provision of Rule 91 (1) of
  the SEC consolidated Rules 2013 still applies.

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SEC requirement for Registration/ Authorization
of Private Equity Fund Managers(Rule 91 SEC
consolidated Rules 2013)

• An application for registration and authorization
  as a Private Equity Fund Manager shall be filed
  along with the following
• Evidence of payment of ?5,000 being application
  fee
• Evidence of payment of ?100,000 being
  registration fee for the company and ?1,000 each
  for sponsored individuals
• Duly completed SEC form 3 to be accompanied by
  the following
• Completed SEC form 2 for atleast three sponsored
  individuals, one of which should be a compliance
  officer responsible for monitoring compliance
  with Investment Securities Act (ISA) 2007, SEC
  Rules Regulations, notifications, guidelines,
  e.t.c

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SEC requirement for Private Equity Fund Managers
contd.

• Copy of certificate of incorporation certified by
  the Corporate Affairs Commission (CAC).Original
  is to be sighted by the authorized staff of the
  Commission
• A copy of Memorandum and Article of Association
  also certified by CAC which should include power
  to act as fund/portfolio manager, in this case a
  Private Equity Fund Manager
• Name(s) and address (es) of the companys
  subsidiaries, associated companies, type of
  business and percentage holding

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SEC requirement for Private Equity Fund Managers
contd..

• Latest/current audited accounts or statement of
  affairs of the company
• Latest professional indemnity insurance policy
  for the company covering atleast 20 of the
  minimum paid up capital of ?20million
• Profile of the company/firm which should include
  among others, brief history of the company,
  organizational and shareholding structure,
  principal officers as well as details of past
  present activities of the company
• Sworn undertaking to keep proper records and
  render returns

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SEC requirement for registration authorization
of Private Equity Funds(Rule 561 SEC Consolidated
Rules 2013)

• In line with the above provision, an application
  for registration authorization of a private
  equity fund shall be filed along with the
  Information Memorandum to be issued to the target
  investors.
• The Information Memorandum shall contain the
  following
• The investment policy and objective of the fund
• The industry or geographical focus of the fund
• The fund managers experience in private equity
• The investment criteria for target portfolio
  companies

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SEC requirement for registration authorization
of Private Equity Funds contd..

• The names and profile of the fund managers
  principal officers and management team
• Tax issues
• Material risks associated with investing in the
  fund
• A statement of any minimum investment commitment
  required of an investor
• Total capital commitment
• Net target investment returns

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SEC requirement for registration authorization
of Private Equity Funds contd..

• Distribution of proceeds and sharing ratio
• Relevant fees and charges connected with
  investment in the fund
• Provision for admission of new investors and
  withdrawal of existing investors
• Valuation methodology and frequency of valuation
  
• Exit routes from investments
• Management participation in the fund
• Repayment of capital

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SEC requirement for registration authorization
of Private Equity Funds contd..

• Duration of the fund and any possible extension
  thereof
• The establishment of an anti-money laundering
  program and duty to report suspicious activity
• The duties, responsibilities and liabilities of
  the fund manager
• Provision for meetings and voting quorum.
• Economic development impact.
• Provision for termination or winding up.

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SEC requirement for registration authorization
of Private Equity Funds contd..

• Prototype agreement between the Fund Manager and
  investors
• Establishment of an anti-money laundering program
  and duty to report suspicious activities.
• Copy of the certificate of incorporation of the
  manager of the Private Equity fund
• Two copies of the memorandum article of
  association of the manager of the private equity
  fund certified by the CAC, with a provision
  authorizing the company to manage Private Equity
  fund
• Two copies of form C07 of the manager to the
  Private Equity fund certified by the CAC
• Sworn undertaking to file quarterly returns with
  the Commission
• Any other material information

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Reporting /Other requirements for Private Equity
Funds

• In addition to the Provisions of SEC Consolidated
  Rule 561, SEC Rule 562 (1) (2) stipulates
  reporting requirements for Private Equity funds
  i.e
• Submission of Quarterly returns detailing Total
  number of investors in the Fund, total commitment
  received from investors, total commitment already
  drawn-down, current of investments of the fund
  and current value of assets of the fund
• Submission of Annual account/report of the Fund
  and a semi-annual report to the investors.

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Reporting /Other requirements for Private Equity
Funds

• SEC Rule 563 requires a private equity fund
  investment to be priced at fair value, where fair
  value means the amount for which an asset could
  be exchanged between knowledgeable willing
  parties.
• However, these rules are only applicable to
  private equity funds with a minimum commitment of
  ?1billion investors fund.

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Conclusion

• Current global wave of regulatory reforms in the
  private equity/ Hedge funds space is premised on
  the believe that the alternative investment
  industry contributed in no small measure to the
  global financial crisis hence across
  jurisdictions, the regulators are imposing
  significant transparency and disclosure
  obligations on the Private Equity Fund industry
  to guard against Systematic failure as the
  collapse of a major Hedge fund could
  significantly impact the financial market
• Though investors in Private Equity Funds are
  usually sophisticated and have the capacity to
  demand information themselves there is the
  additional comfort of regulatory oversight.

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THANK YOU