By Nanea, a private equity insider
I’ll be having much more to say later about the Bain documents posted on Gawker.
In the meantime, I would like to point out the utterly misleading nature of the statement issued by Bain Capital in response to the documents’ release. The Bain Capital press release, which was quoted by many news outlets, stated:
The unauthorized disclosure of a number of confidential fund financial statements is unfortunate. Our fund financials are routinely prepared by auditors and demonstrate a commitment to transparency with our investors and regulators, and compliance with all laws
First, the Bain statement incorrectly states that “Our fund financials are routinely prepared by auditors…” In reality, auditors–especially a big one like PriceWaterhouse Coopers–absolutely refuse to prepare financial statements for any clients in any industry that I am aware of. Instead, for liability reasons, they explicitly confine their activity to auditing the statements prepared by their clients and expressing an opinion about them based on the audit. PwC states its role clearly in its cover letter, on PwC letterhead, accompanying all the Bain financial statements it audited:
These financial statements are the responsibility of the General Partner. Our responsibility is to express an opinion on these financial statements based on our audit.
PwC is taking pains to clearly disavow a role in preparing the financial statements because PwC knows that any financial statements, despite being audited, may be materially inaccurate. Bain’s statement yesterday, on the other hand, is trying to convince the public that the statements must be accurate because, Bain falsely claims, the auditors prepared them. One wonders whether PwC has lodged a private objection today with Bain for this false statement, or whether the firm’s professional standards group is evaluating whether they need to in some way correct the public record.
Second, Bain’s statement talks about the documents evincing “… a commitment to transparency with our investors and regulators”. With respect to the regulators, none of these documents were ever filed with regulators. Unlike the financial statements of publicly traded companies, private equity fund financial statements are not filed with the SEC. Similarly, “registered” securities offerings are filed with the SEC and must be approved by it. By contrast Bain’s offerings, as private equity securities offerings (the materials used to solicit investors in the funds), are “unregistered”, meaning that they are not submitted to the SEC. The IRS does not receive these documents routinely, nor do banking regulators or any other financial regulator I can think of.
Ultimately, there doesn’t appear to be much about the Bain statement that is accurate.
Yves here. I called Bain Capital’s media relations department and raised the question of the accuracy of their statement, specifically the effort to give the impression that the documents released by Gawker were disclosed to regulators. I was told that “these funds are SEC registered funds.” I was gobsmacked that he’d try that line. See details below, emphasis mine, from the ADV Part 2 on file with the SEC (this is part of the registration materials for the parent entity, which is registered):
Item 4. Advisory Business
Bain Capital Partners, a Delaware limited liability company wholly owned by Bain Capital, LLC (“Bain Capital”), provides investment advisory services to pooled investment vehicles that are exempt from registration under the Investment Company Act of 1940, as amended (the “1940 Act”) and whose securities are not registered under the Securities Act of 1933, as amended (the “Securities Act”) (the “Bain Capital Partners Funds”)1. As the investment adviser of each Bain Capital Partners Fund, Bain Capital Partners, along with each Bain Capital Partners Fund’s General Partner (“General Partners”), identifies investment opportunities for, and participates in
the acquisition, management, monitoring and disposition of investments of, each Bain Capital Partners Fund.