By Peter Lattman
In recent years, the private equity industry has escaped much of the regulatory scrutiny that has been directed toward hedge funds and Wall Street banks. But that appears to be changing.
The Securities and Exchange Commission has begun a broad examination of the private equity industry, seeking information about the business practices of some of the country’s most powerful financial firms.
The S.E.C.’s enforcement unit sent a letter late last year to several private equity funds as part of what it called an “informal inquiry” into the industry, according to two people with direct knowledge of the matter who requested anonymity because they were not authorized to discuss it publicly. It is not clear which firms received the letter.
While the S.E.C. emphasized that the request should not be construed as an indication that it suspected any wrongdoing, its goal in gathering information was to investigate possible violations of securities laws, these people said.
One focus of the inquiry is how private equity firms value their investments and report performance. Unlike the valuing of publicly traded stocks, valuing private equity investments — largely in private companies that are not listed on an exchange — can be a thorny and subjective process.