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Zombie Valuations and Titles – SEC “zombie managers”

February 7, 2013

The SEC’s Bruce Karpati quoted referring to “zombie managers” in WatersTechnology: “Fighting Zombies: Valuation Scrutiny Upends Private Equity” by Timothy Bourgaize Murray:

Zombies— a cultural obsession du jour—found yet more relevance earlier this year from an unexpected source: the asset management unit of the Securities and Exchange Commission (SEC).

In a speech in January, the division’s head of enforcement, Bruce Karpati, noted that among the regulator’s new concerns is asset valuation in private equity (PE), one particular aspect of which is the snuffing out of “zombie managers” in PE, who, when faced with low liquidity, will extend the life of dormant funds from a typical 10-year cycle to 12 or 15 years, even while management of them is effectively inactive.

zombie bruce karpati sec enforcement

Zombies may be the headline, but increased focus on valuation, sources close to private equity say, is indicative of market-driven change in the space, as well. Large LPs, primarily institutional investors and pension funds, have in the past year become far more active, investing in private equity─e.g. pension plans from New Jersey and Texas investing with Silver Lake Partners─and trading in PE secondary markets. And with those increased allocations these firms, like the SEC, are far more interested in visibility into firms’ processes than in the past.

Note the issue of visibility (related to zombie eyes).

Also in BusinessJournalism: Reuters reporter tracks foreclosures to find the “zombie title” by Rosland Gammon is about how Michelle Conlin tracked the “zombie titles” story for Reuters: Special Report: The latest foreclosure horror: the zombie title – ZombieLaw previously mentioned Conlin’s article in “Magical realism in business and real estate” – and recall also the NJ law firm has warned about zombie titles.

The zombies are leftover from the uncertainty of recent crises but they are also part of the fundamental problems of credibility and transparency in the financial fund markets.

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From → economics, money

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