The US Securities and Exchange Commission’s enforcement arm is examining continuation vehicles used by private equity firms and other asset managers to keep hold of assets they are unwilling or unable to sell, reported Reuters.
According to the sources cited by the news agency, staff have in recent months focused on several continuation vehicles, or CVs.
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Their work is looking at possible conflicts of interest, asset valuation practices, and whether disclosures to investors are adequate and consistent.
Reuters was not able to establish which funds are involved or what assets they contain.
Continuation vehicles let managers move assets from older private equity funds into a new structure backed by new investors.
This extends the holding period and gives existing investors the choice to exit.
The structures have become more useful as higher interest rates have made sales harder, particularly after firms bought assets at elevated valuations during the period of cheap money in the pandemic, the news agency said.
Sources said that, since late last year, enforcement staff have also tried to create an informal “working group” with the examinations, investment management and other divisions to improve co-ordination and information-sharing on the private credit market.
Although SEC examiners have been looking at private fund matters, including continuation vehicles, for some time, the involvement of the enforcement division suggests broader concern inside the agency about risks in private markets.
Last month, SEC Chair Paul Atkins said the agency is investigating allegations of fraud in private credit firms, without giving further detail.
Enforcement director David Woodcock said the SEC is “attuned to potential risks relating to liquidity, fees, valuations, and conflicts of interest” across the sector.
