Offering ("PPM") Agreement (Funds) Advisers to Private Equity Issuers & Private Funds of compliance issues that may impact the IA depending upon whether it is considered to have custody of client assets or funds. Given the brevity of this article, I will not address those issues other than to say that the operation and controls of the IA have a material impact upon the compliance obligations associated with whether the IA must comply with the custody regulations or not. Generally, IAs seek to have a third party custodian that has economies of scale in its compliance with the custody regulations and takes the necessary steps, including, but not limited to surprise examinations, audits by a report, issuance of client statements on at least a quarterly basis, etc. that adequate due diligence has been performed. The selling BD, syndicate manager, IA and/or third parties such as laws firms, compliance specialty firms, etc. may perform the due diligence. Moreover, multiple firms may perform various aspects or segments of the due diligence exercise. Where firms are affiliated with the issuer, a combination of approaches must exist, including disclosing the affiliation, the potential conflict of interest and the potential effect of the conflict (and any steps put into effect to mitigate the effect of the conflict). The securities industry refers frequently to conflicts of interest between the managers, partners, issuers, IAs and BDs. Perhaps the first conflict of interest that firms should consider in private equity deals is with the issuer itself. In other words, the business plan itself is developed by the issuer and so IAs and BDs must strive to validate the business plan. Specific areas of due diligence should otherwise include the issuer and management, business prospects, issuer's assets, etc. Investigation information reviewed (including dates of review) meetings and conducted the reviews Equity Failures the deal expenses parties to evolve under the microscope and political scrutiny of regulators, investors and others. Private equity products serve as a catalyst and an essential component to the capital formation process, particularly for small and medium- sized enterprises. As an industry, we have unfortunately experienced and/or been privy to some of the "war stories" and abuses that have exacerbated the scrutiny that we now confront. As securities industry professionals, it is incumbent upon us to distinguish ourselves from the proverbial "bad guys" and thereby demonstrate that our firms care about "doing it right." Due diligence; compensation; formation, sales and management processes; deal features and many other aspects of private fund or private project financing ecosystem will play an important role in whether we can demonstrate we did it the right way and are worthy of retaining our livelihood in this important and valuable sector of the financial marketplace. |