Private equity funds have managed for years to squeeze into a unique loophole in federal securities law. Because the funds generally solicit only a small number of wealthy, sophisticated investors, they are exempt from the disclosures normally mandated by federal securities laws. As a result, the funds have kept their investment information undisclosed, privately pursuing specialized investment strategies that yield high returns and allow investors to diversify outside the mainstream.
Due to recent lawsuits filed under state Freedom of Information Acts (FOIAs), many of the wealthiest investors in private equity funds, including public universities and state pension funds, must disclose information about their investments. Information about the funds in which they invest consequently is being cast into the public light for the first time. The reaction from the private equity community has been primarily negative, with some of the more prestigious funds going so far as to ban public institutional investors altogether.
This Comment explains how private equity firms are generally exempt from disclosing information about their investments under federal securities law. It then describes how state public disclosure laws intended to benefit the public may instead result in the exclusion of public institutions from the most lucrative private equity funds as the funds fight to keep their investment information and strategies private. Finally, the Comment considers statutory, regulatory, and political solutions to this problem, and it proposes a uniform state law that would balance the privacy of private equity firms with the public's desire to shed light on investment returns.