Federal and state authorities are pulling back the covers on the secretive world of private equity by examining how these firms value the investments in the portfolios they run for pension funds, endowments, and nonprofits.
The Securities and Exchange Commission has sent letters of inquiry to about a dozen firms, asking how they value the investments in their private equity funds, according to two people briefed on the matter. Both the SEC and Massachusetts Attorney General Martha Coakley are looking more closely at a particular fund, the Oppenheimer Global Resource Private Equity Fund, according to these people.
The head of the Brockton Retirement Board confirmed that Coakley’s office has been looking into the pension fund’s investment in the Oppenheimer fund since last fall.
Harold P. Hanna Jr., executive director of the $311 million Brockton Retirement Board, said Coakley’s office requested a number of documents from him, including Oppenheimer’s response to a request for proposal and various investment reports the board has received since committing $5 million to the fund in March 2010. So far, $2.6 million of that money has been tapped by Oppenheimer, he said. Brockton has 17.4 percent of its assets in private equity and venture capital funds.
Coakley’s office would not confirm the probe or identify any other firms that might have be involved in the inquiry.
The Oppenheimer private equity fund was part of Oppenheimer Holdings Inc., a New York-based brokerage firm. But the fund has since spun off from the holding company.
An Oppenheimer spokesman did not respond to a request for comment yesterday.
The private equity inquiry was first reported by The Wall Street Journal.
Private equity firms typically buy and sell companies but do not have to disclose the financial details of their dealings. But they could come under greater scrutiny following the Dodd-Frank financial overhaul, and many of the funds must register with the SEC for the first time ever by March 30. Under five new specialty enforcement groups at the SEC, one includes private equity, an area that has received little to no oversight by federal regulators in the past.
The scrutiny is hardly welcomed by the industry and comes as buyout firms’ business practices have come under attack during Mitt Romney’s run for the presidency. Romney was founder of Bain Capital, a major player in private equity, and often says he created a lot of jobs during his tenure there. Critics say buyout firms often cut jobs during turnarounds to reap profits.
Steve Judge, president of the Private Equity Growth Capital Council declined to comment on the SEC and Coakley’s inquiries yesterday.
In a statement, he said, “Private equity firms work hard, with auditors and company managements, to provide accurate valuations of their largely illiquid holdings to their investors.’’ He also said, “Because private equity investments are not traded on stock exchanges, investors and company management can focus on creating value over the long term and not on the monthly or quarterly pressures of the public markets.’’
The head of the Quincy Retirement Board, which also reportedly was contacted by Coakley’s office about Oppenheimer, was not available for comment yesterday.