Will Private Equity Fund Managers Get a Registration Exemption?

Early versions of Dodd-Frank had an exemption from registration for private equity fund managers, just as there is one for venture capital fund managers. Perhaps there is some hope that the private equity exemption will once again surface?

Don’t count on it.

Although I appreciate the efforts of Congressmen Hurt, Cooper, Garrett, Himes, and others. They wrote a January 30 letter to the Securities and Exchange Commission urging the SEC to “delay the March 30, 2012 registration deadline and to exempt advisers to private equity funds that are not highly leveraged at the fund level from the new registration requirements.” They point out that The Small Business Capital Access and Job Preservation Act has a new registration exemption for private equity. Unfortunately, it’s been sitting dead since it was passed by the House Financial Services Committee in June 2011.

The congressmen’s argument:

In addition, [the Congressmen] believe that requiring registration by private equity fund advisers not only misdirects resources at private equity firms but also at the Commission. As a result of private equity fund adviser registration, the Commission will have hundreds of new firms to oversee and inspect. The Commission’s resources will thus be diverted away its core responsibilities of protecting retail investors and other new oversight priorities that can contribute in a meaningful way to financial stability.

It’s a nice argument, but too late. The registration deadline is March 30, but the filing deadline is February 14. Private equity firms already have their resources allocated or are very far along in gathering them up.

I’ve heard some whispers from limited partners indicating they are concerned that private equity is fighting against SEC registration under the Investment Advisers Act. Although it’s a good regulatory scheme for hedge funds, there are many items in the scheme that is a poor fit for private equity. The insider trading requirements and custody rule are at the top of my list.


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