Business Capital Access and Job Preservation Act, H.R. 1082, took another
step forward this week when it was approved by the House Committee on Financial
Services. It still has a long way to go before coming law so this is no time to
stop getting your compliance infrastructure in place.
The bill still defers the definition of "private equity
fund" to the Securities and Exchange Commission and gives the SEC six months to
come up with that definition. Even assuming the bill passes and passes quickly,
you would not know if you fit into this exemption until very close to the March
30, 2011 filing deadline under the Investment Advisers Act.
The bill has been revised and now imposes a leverage
"provided that each such fund has not borrowed and does
not have outstanding a principal amount in excess of twice its invested capital
I think that limitation would prohibit the use of a
subscription secured credit facility by a private equity fund if they wanted to
take advantage of this exemption. That borrowing is used prior to calling
capital and to provide liquidity without calling capital. It makes it easier
for the fund manager to smooth out capital calls to investors.
Beyond that facility, It's not clear to me whether that
limitation would include debt at the portfolio level. In reading the minority
view at the end of the committee
report (.pdf), they think the leverage limitation excludes leverage in the
Unfortunately, the committee report comes across as very
partisan and attacks Dodd-Frank as a whole. To me that would only seem to
decrease the likelihood that the House as a whole will take the bill seriously.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.
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