Exclusive-US SEC probes popular type of private equity fund as it steps up industry scrutiny, sources say

By Chris Prentice, Dawn Kopecki and Isla Binnie

WASHINGTON, June 24 (Reuters) - The U.S. Securities and Exchange Commission's enforcement part is probing funds typically utilized by backstage equity firms and different wealth managers to clasp connected to assets they either cannot oregon bash not privation to sell, arsenic the bureau explores imaginable issues successful backstage markets, said 3 radical acquainted ‌with the matter.

In caller months, SEC enforcement unit person homed successful connected a fig of "continuation vehicles," oregon CVs, said the people, who spoke connected information of anonymity.

They are investigating imaginable conflicts ‌of involvement astir the CVs, however managers are valuing the assets, and whether capitalist disclosures are capable and consistent, the 3 radical said. Reuters could not ascertain which circumstantial funds are being investigated oregon what benignant of assets they hold.

The enforcement scrutiny into ​CVs has not antecedently been reported.

Continuation vehicles person surged successful popularity, with money manager-led secondary transactions worthy $106 cardinal past year, according to Evercore.

Rising involvement rates person made it harder for PE firms to find buyers consenting to lucifer the lofty multiples paid for immoderate companies, particularly during the pandemic erstwhile rates were debased and wealth was cheap.

Geopolitical turmoil, argumentation uncertainty and disruption driven by artificial quality person strained income from backstage equity portfolios adjacent further.

Traditional backstage equity funds person a finite beingness cycle, usually astir a decade. CVs let managers to find caller investors and transportation assets from older funds into a caller vehicle, extending the holding play portion giving existing investors ‌the enactment to currency out.

As a result, the vehicles springiness managers a ⁠way to instrumentality currency to investors without being forced to merchantability assets astatine a heavy discount successful anemic markets oregon to a rival — oregon recognize imaginable losses. CVs predominantly woody successful equity assets, though the stock of recognition assets is growing.

CLOSE COORDINATION AT THE SEC

Since precocious past year, unit successful the enforcement part person besides sought ⁠to physique what the sources described arsenic an informal "working group" with the examinations, concern absorption and different divisions, to guarantee person coordination and information-sharing connected the opaque backstage recognition market, the radical said.

While SEC examiners person been scrutinizing backstage money issues, including continuation vehicles, for immoderate time, the escalation to the enforcement part and the cross-division collaboration underscore increasing concerns among watchdogs implicit imaginable problems successful backstage markets.