IMPACT OF DODD-FRANK ON OPERATIONAL DUE DILIGENCE

The broad impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act has a number of implications for the private equity industry. While the full impact of this legislation is still unfolding, Dodd-Frank has a number of ramifications that will directly influence operational due diligence on both U.S.-based private equity managers and those managers that have a presence in or interact with U.S. markets.

Subsequently, investors will need to revise their approaches toward operational due diligence in order to determine if a private equity manager has reacted effectively to this landmark legislation. Specifically, one area that will be most readily affected is a private equity fund's approach toward compliance. Investors must also consider Dodd-Frank in the context of other recently passed rules such as the SEC's amendments to Rule 206(4)-2 of the Investment Advisors Act of 1940 (the so-called Custody Rule). Other key areas that may be affected include information technology requirements, fund reporting, recordkeeping, and transparency. With the passage of Dodd-Frank, LPs had a number of opportunities to gauge the way in which GPs approached....