Wednesday, March 18, 2015

Quick Note # 2: Poorly Chosen Words by an SEC regulator

Quick Note # 2: Poorly Chosen Words by an SEC regulator

My former colleague at Legg Mason and the director of the SEC’s examinations office, Andrew Bowden made some unfortunate comments at a recent private equity conference.  The comments were picked up by the blog Naked Capitalism[1] and reported by the International Business Times.[2]  In a question and answer session, Mr. Bowden spoke admiringly of the private equity business model and went on to say that he’d encourage his teenage son to find a job in the industry.  An audience member interjected that he’d be glad to offer Mr. Bowden’s son a job.  This was a very unfortunate statement by a regulator.

Mr. Bowden’s statement was in response to a question about the growing cost of regulation, especially for smaller PE firms.  I think, Mr. Bowden was trying to say that PE firms, large and small, have the profits to comply with heightened scrutiny, and should be bending over to comply with SEC regulations because they wouldn’t want to compromise their business model.

Unfortunately, his statement did not come out that way, and his reference to his son and the audience response was inappropriate.  The most disturbing aspect of Mr. Bowden’s remarks is that he said that the PE industry adds value for its clients.  Whether that statement is true or not (and I am strongly of the opinion that it is not), a regulator has no business expressing an opinion on the efficacy of an asset class or strategy.  For decades, the SEC has consistently reminded investors that its review of a manager or an investment offering is not an endorsement on the merits.  Last summer I wrote approvingly about Mr. Bowden’s approach to examining the financial practices of private equity funds.[3]  Mr. Bowden’s recent comments undermine what had appeared to be a serious and even-handed approach to regulation.

In watching the video of Mr. Bowden’s comments, it appears to me that he’s trying to come across as a likeable guy in audience filled with industry professionals.  Regulators aren’t supposed to be likeable or unlikeable.  Their job is to hold industry accountable.  With a few badly chosen words, Mr. Bowden has done damage to an agency that already leaves me wondering whether they have the wherewithal to take on powerful moneyed interests.    

[3] see, “The Regulators Understand: SEC Examinations of Private Equity (May 8, 2014)”

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