Why can Blackstone reject SEC requests for hedge fund data?

[JFKfanforever]

Blackstone Rejects SEC Request for Fund Data as Fortress
Agrees 
Share | Email | Print | A A A 

By Miles Weiss

March 30 (Bloomberg) -- Blackstone Group LP, the world’s
largest private-equity firm, rebuffed a request from
securities regulators to publicly disclose the performance of
its buyout and hedge funds while Fortress Investment Group LLC
agreed. 

The U.S. Securities and Exchange Commission asked both New
York-based companies to include fund returns in their
financial reports, according to letters the agency released
earlier this month. Fortress did so in its annual report.
Blackstone told the SEC it wouldn’t. 

Buyout firms and hedge-fund managers are accustomed to
operating in private, and the decisions by both companies to
sell shares to the public in 2007 sparked debate over how much
information they would divulge. Returns are an important
indicator of a firm’s ability to attract new cash from clients
and increase revenue, said Conrad Weymann, managing partner at
Mallory Capital Group LLC, a Darien, Connecticut-based
investment bank. 

“In this game, it’s track record, track record, track record,”
said Weyman, whose firm raises money for private- equity and
private real-estate funds. 


- - Rothschild power?    
The SEC asked Blackstone and Fortress last year to publish
“performance information” in future filings. The SEC requested
details including the name of each fund, the date it was
formed, assets under management and net return for each period
presented in the filing. 

In explaining why investors should get the data, the SEC cited
Blackstone’s and Fortress’s own words in previous filings.
Both had warned investors that subpar performance could hinder
future revenue and their ability to start new funds. 

Augmentations 

Daniel Bass, Fortress’s chief financial officer, responded in
a Jan. 26 letter to the SEC that the company would “augment
our disclosure” by providing a performance table for “all
significant funds” in its annual report. 

The chart in the company’s annual report, issued March 16,
included returns on 25 private-equity funds and seven hedge
funds with combined assets of about $29 billion at Dec. 31. 

The company didn’t provide annual performance figures for
buyout funds that were still making investments or were less
than a year old, stating instead that some had returns to date
that were “significantly negative.” 

Blackstone Chief Financial Officer Laurence Tosi told the SEC
in a Dec. 5 letter that disclosure of detailed performance
data wasn’t required under applicable regulations and wasn’t a
meaningful measurement of operating results. 

“The individual rates of return have no direct impact on our
financials and therefore we question the relevance to our
investors,” Tosi said in the letter. 

No Fund Data 

Blackstone’s March 2 annual report disclosed that the fair
value of its private-equity funds had a net depreciation of 32
percent last year, compared with net appreciation of 16
percent in 2007. 

Blackstone had about $91 billion in fee-earning assets under
management at Dec. 31, including $25.5 billion in private-
equity funds and $22.9 billion in real-estate funds. The
remaining $42.6 billion was in hedge funds and funds that
invest in hedge funds. 

Peter Rose, a Blackstone spokesman, declined to comment of the
firm’s letter, which the SEC released March 16. Fortress
spokeswoman Lilly Donohue didn’t return a telephone call
seeking comment on its letter, released March 20. 

In the prospectus for its initial public offering, Blackstone
said it intends to be a “different kind of public company”
whose managers take a long-term perspective. The firm won’t
provide earnings forecasts because the performance of its
businesses may vary in “significant and unexpected ways” from
quarter to quarter, according to the filing. 

Review Finished 

The SEC said in a Jan. 30 follow-up letter to Blackstone that
the agency had completed its review and had no further
comments “at this time.” 

Andy Schoeffler, a staff attorney in the agency’s division of
corporation finance who was listed as a contact in the letter,
declined to comment. 

Buyout funds use a combination of capital raised from
investors and debt to take over companies. They seek to boost
the companies’ earnings through increased sales and cost-
cutting. Hedge funds are private pools of capital, largely
unregulated, that invest in anything from stocks and bonds to
commodities, futures, derivatives and real estate. 

Long Term 

Because private-equity funds earn their returns by purchasing
and then selling companies over a seven- to 10-year period,
annual performance figures can be misleading, particularly in
the early life of the partnership, said Marc Bonavitacola, who
analyzes and examines buyout funds for Boston- based SVG
Advisers Inc. 

A private-equity fund’s actual returns can’t be judged until
all the companies it has invested in have been fixed up and
sold, he said. 

While it would be helpful to have more disclosure, “I
understand why Blackstone doesn’t want to do it,” said Daniel
Fannon, an analyst at Jefferies & Co. in San Francisco.
“These are points in time and the private-equity funds have a
much longer life.” 

To contact the reporter on this story: Miles Weiss in
Washington at [e-mail] 

[DJ13]

1. The same reason they are thought to be behind the credit crisis

They operate without regulation, so they arent compelled to answer regulatory inquiries.