♪ ♪.
MELISSA: S FROM THE BIG
BONUSES OF EUROPEAN BANKERS
TO HIGH FLYING HEDGE FUNDS
RIGHT HERE IN THE U.S., THE
SEC IS NOW INVESTIGATING
EXPENSES AT HEDGE FUND AND
PRIVATE EQUITY FIRMS.
YOU KNOW LIKE ALL THE
PRIVATE JETS AND LAVISH
CONFERENCES FEATURING A-LIST
ENTERTAINMENT LIKE MAROON 5.
VERY HIGH MANAGEMENT FEES.
NORMAL WAY OF DOING BUSINESS
IN THE INDUSTRY.
THE THING IS THE INVESTORS
IN THESE FUND ALREADY KNOW
WHAT THEY'RE PAYING FOR.
IT IS UNCLEAR WHY THE
GOVERNMENT NEEDS TO GET
INVOLVED HERE.
HERE TO BREAK DOWN BOTH
SIDES, ED BOO TO US SKI, AND
JENICE, FORMER FINRA
ARBITRATOR AND CHAIRPERSON
AND SECURITIES ATTORNEY.
LET ME START WITH BOTH OF
YOU.
ED, LET ME START WITH YOU.
WE KNOW HEDGE FUND AND
PRIVATE EQUITY ROLL REALLY
LARGE WITH THE G-5s AND
HOTELS AND BUT THEY DISCLOSE
TO INVESTORS.
VERY SOPHISTICATED
INVESTORS.
THAT IS PART OF THE FEE
STRUCTURE.
IF THEY OBJECTED TO THAT
THEY WOULDN'T INVEST WITH
THE FOLKS.
>> NOT ALL DO.
I HAVE A HEDGE FUND AND
DON'T HAVE A G-5.
MELISSA: ARE YOU FLYING
COACH?
I DON'T THINK SO?
>> ABSOLUTELY.
17 C.
HERE IS THE POINT.
THIS IS PRIVATELY NEGOTIATED
AGREEMENT THAT AN INVESTOR
MAKES WITH THAT FUND.
IT IS PRIVATE.
THEY AGREE, AND AS LONG AS
IT IS FULLY DISCLOSED WHAT
ROLE DOES THE GOVERNMENT
HAVE IN THIS?
THIS IS PRIVATELY NEGOTIATED
AGREEMENT BETWEEN A WEALTHY
INDIVIDUAL OR A SMALL
INSTITUTIONAL OR EVEN A
LARGE INSTITUTION.
IT IS PRIVATE.
THE SEC HAS NO ROLE HERE.
MELISSA: WHAT ABOUT THAT?
HOW DOES THE SEC HAVE THE
RIGHT TO GET INVOLVED IN
THIS?
>> THE SEC ABSOLUTELY HAS A
ROLE SINCE 2011 IN JULY WHEN
DODD-FRANK WAS ENACTED.
BECAUSE NOW HEDGE FUND
ADVISORS HAVE TO ACTUALLY
REGISTER UNDER THE
INVESTMENT ADVISORS ACT OF
1940 WHICH CREATES A
FIDUCIARY DUTY TO INVESTORS.
AND ONE OF THE REGARDING
EXPENSE THAT IS THE SEC IS
LOOKING AT WHAT WAS ACTUALLY
DISCLOSED AND ARE THERE SORT
OF SOFT ISSUES THAT WEREN'T
BEING DISCLOSED.
MELISSA: LIKE WHAT?
THEY ITEMIZE THE EXPENSES.
THEY SHOW THEM WHAT THEY
HAVE SPENT.
THAT IS DISCLOSURE?
>> THEY HAVEN'T SHOWN
WHETHER OR NOT DIRECTLY
RELATED TO MANAGEMENT OF THE
FUND OR WHETHER IT IS SOME
TEAM BUILDING ACTIVITY THAT
MAY NOT DIRECTLY BENEFIT THE
INVESTORS.
>> THAT'S TRUE.
AS LONG AS IT IS DISCLOSED.
YOU CAN'T BE WRITING OFF
YOUR BMW IF IT IS NOT
DISCLOSED AGAINST A FUND.
YOU'RE ABSOLUTELY RIGHT.
SINCE THE DODD-FRANK RULE
WENT INTO PLACE, THE LAW,
THESE HAVE TO HAVE BEEN
REGISTERED AND THE FIDUCIARY
TITLE THAT HAS BEEN PLACED
ON THIS IS VERY DAMAGING.
THERE IS A LOT OF COSTS THAT
GO ALONG WITH THIS.
REALLY THE SEC OVERREACHING
TO TRY TO MEDDLE INTO
EVERYBODY'S BUSINESS.
THEY DON'T NECESSARILY HAVE
TO BE IN EVERYBODY'S
BUSINESS.
MELISSA: YOU TALK ABOUT TEAM
BUILDING A COMMON THINGS
THESE FUNDS DO HAVE
OFF-SITES THINK TALK ABOUT
INVESTMENT IDEAS.
THEY HAVE PRESENTATIONS.
THEY MAY BRING IN LIMITED
PARTNERS.
MAY BRING IN SOME OF THE
INVESTORS.
PART OF THE ALLURE AND SHOW
OFF HOW WELL THEY'RE DOING
HAVING IT AT FOUR SEASONS OR
HAVING MAROON 5 OR WHATEVER
IT IS TO HAVE PEOPLE THERE
THEIR INVESTORS ARE THERE.
THEY KNOW WHAT THEY'RE
GETTING INTO.
THEY KNOW THIS MONEY IS NOT
COMING OUT OF THIN AIR.
IT IS COMING OUT OF FEES
THEY'RE PAYING PEOPLE.
IF THEY'RE NOT GETTING
RETURNS THEN THEY WON'T
INVEST THERE.
IF IT IS SO OBJECTIONABLE
SOMEBODY SET UP HEDGE FUND
OR I'M THE LOW COST
ALTERNATIVE.
I WILL FLY COACH.
I WILL NOT STAY AT THE FOUR
SEES SONGS.
INVEST IN MY HEDGE FUND THAT
IS COMPETITION.
WHY DO YOU NEED THE SEC?
>> THE SEC WERE SEEING
WHETHER DISCLOSURES IS
ADEQUATE.
MELISSA: IS THAT ONLY REAL
ISSUE WHETHER IT WAS
DISCLOSED OR NOT?
>> THEY'RE LOOKING WHAT IS
APPROPRIATE TO CHARGE.
>> WHO IS THE SEC TO MAKE
THAT DETERMINATION OF WHEN A
PRIVATELY NEGOTIATED
CONTRACT IS MADE?
DO YOU WANT THEM MEDDLING
EVERY SINGLE --.
MELISSA: LET HER RESPOND.
SHE IS NOT GETTING TO TALK.
>> THE SEC IS INVOLVED
BECAUSE OF DODD-FRANK AND
INVESTMENT ADVISOR FIDUCIARY
RESPONSIBILITY.
THEY HAVE A ROLE TO SEE WHAT
IS GOING ON.
THEY'RE GOING INTO THE WHAT
FEES AND EXPENSES ARE AND
REALLY LEGITIMATE FEES AND
EXPENSES.
FINE IF YOU'RE HAVING
SEMINARS AND TALKING ABOUT
INVESTMENT RELATED
ACTIVITIES.
IT IS NOT SO FINE IF THAT IS
NOT WHAT YOU'RE DOING AND
THIS IS JUST A BIG JOYRIDE.
>> I AGREE.
MELISSA: WHAT ABOUT THE
ARGUMENT THAT, YOU KNOW, ONE
OF THE BIGGEST INVESTORS, OR
THE BIGGEST INVESTOR IN
PRIVATE EQUITY RIGHT NOW ARE
PENSION FUNDS?
THEY ARE PENSION FUNDS FROM
STATES.
THEY ARE TEACHERS.
THEY ARE FIREFIGHTERS.
MAYBE THE MANAGER OF THEIR
FUND KNOWS WHAT IS GOING ON
BUT THE TEACHER OR COP THE
REAL INVESTOR IN PRIVATE
EQUITY DOESN'T KNOW THE
PERSON MANAGING THEIR
RETIREMENT FUND IS FLYING
AROUND IN A G-5.
MAYBE THAT GIVES THE SEC THE
RIGHT TO GET INVOLVED?
>> THERE IS LOT OF GRAY
AREAS.
IN DALLAS THERE WAS ONE
SITUATION THERE WAS FLYING
AROUND, I THINK BY THE CITY
OF DALLAS PENSION.
THERE WERE PRIVATE PARTIES
AND FLYING AROUND THE WORLD.
SO IT IS GRAY.
THAT IS THE BEST WAY OF
PUTTING IT.
SO WE'RE IN A AGREEMENT ON A
LOT OF THIS IT HAS TO BE
DISCLOSED.
IT HAS TO BE IN EVERYONE'S
BEST INTERESTS.
MELISSA: YEAH.
>> THERE WILL BE ALWAYS BE
EXCEPTIONS TO THE RULE.
MELISSA: LET ME GIVE YOU THE
LAST WORD ON THIS.
DO YOU THINK THIS WILL GET
ANY TRACTION?
THEY WILL BE ABLE TO GET IN
THERE AND MAKE SOME NOISE?
>> NOT ONLY WILL THEY GET IN
THERE AND MAKE SOME NOISE
BUT WILL GET A WHOLE NEW SET
OF RULES.
THERE IS NOTHING A REGULATOR
LIKES MORE THAN TO CREATE
RULES.
THAT IS WHAT THEY'RE
FORMULATING RIGHT NOW,
FIGURING OUT WHAT NEW RULES
CAN WE PUT ON THESE PEOPLE.
MELISSA: WHAT A GREAT IDEA,
MORE REGULATION.
MORE PAPER.
LET'S DO IT.
