The private fund industry didn’t collectively wake up one morning and say “Hey, legal and compliance isn’t as important anymore.” Rather, there were a number of factors that went into the declining priority over the past decade. In this post and two subsequent ones, I’ll suggest six factors for the fall of legal and compliance.
1. The industry figured it out. The rationale most favorable to the industry is that firms simply figured out, and that the resources needed to maintain a legal and compliance program aren’t as significant as those needed to create one. That’s not a bad argument. It is easier to periodically review and tweak a compliance manual than to draft one in the first place. Extrapolate from there.
2. Nothing to see here. The industry hasn’t had any major public blowups in about 10 years. At worst there have been a few enforcement cases (primarily involving – ironically – private equity managers who didn’t know what their fee disclosures said). So after 10 years, people can get complacent or sometimes forget things – like the SEC is real and that even word of an enforcement investigation can be bad.