What’s on the regulatory horizon and how will it affect your compliance program

PEI PFC Forum 2013

These are my notes from the Private Fund Compliance Forum 2013. They are live notes, so please forgive my typos.

Christian B. McGrath, Managing Director & General Counsel, GTCR
Jason Mulvihill, General Counsel, Private Equity Growth Capital Council
Joel Wattenbarger, Partner, Ropes & Gray LLP

Broker-dealer regulation in connection with the sale of private fund interests is an upcoming topic. The  David Blass speech on private funds and broker-dealer registration highlights the issue. If you have internal marketing people who are getting paid transaction based compensation for selling fund interests, there may be an issue.

The second issue for private equity is the manager getting fees for portfolio fee transactions that look like a securities offering for compensation.  This may be lessened by having advisor fee offsets. This is an evolving issue. It’s not all fees, just fees for transactions like raising equity or debt on behalf of the portfolio company.

There has been some discussion by the SEC about revising the advisor regulations as they apply to private funds. They see some issues with the applicability of some of the regulations.

According to unnamed sources, lifting the ban on general advertising and solicitation is a priority of the new SEC Chairman. The big question is what the final rule will look like. In particular is the issue of how you confirm that someone is an accredited investor. It’s likely that you will still be able to do a quiet 506 offering under the existing requirements. There is still a prohibition on public advertising under the CFTC 4.13(a)(3) exemption for de minimis commodities trading.

FATCA is coming online at the beginning of 2014. You may need to get more information from foreign investors.


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