Schulte Partners Allison Scher Bernbach and Ben Kozinn Quoted in Private Equity Law Report

Schulte Roth & Zabel partners Allison Scher Bernbach and Ben Kozinn spoke with Hena Lees from The Private Equity Law Report for her article "SEC Enforcement Action Scrutinizes Substantive Details of Level‑3 Valuation Policies and Procedures." The article explores a settlement order in a recent enforcement action by the SEC. 

Ben noted that the Order is representative of the SEC’s continued focus on private funds and that no aspect of private funds will escape scrutiny.  

Allison observed, “Given that PE investments are typically illiquid investments that must use unobservable inputs to determine value, most sponsors have implemented a valuation process for Level‑3 investments that incorporates specific factors to take into account when valuing such investments.” 

On the subject of valuation policies and procedures, Allison stated that “A good policy is drafted with sufficient detail while also providing some flexibility as to the types of inputs the firm will consider, depending on the facts and circumstances, rather than providing an exclusive list of ‘required’ inputs that must always be considered.” 

Ben added that to achieve a sufficient level of detail to satisfy the SEC, fund managers do not need to spell out their modeling techniques in granular detail. He further clarified that “Instead, managers should list the various methods they might use for determining valuations and outline when certain tools would be appropriate.” 

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