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In earlier versions of Dodd-Frank, when it was being
formulated in the House committee, there was an exemption for private equity
fund managers from registration under the Investment Advisers Act. It also had
an exemption for venture capital fund managers. Only the venture capital
exemption managed to survive.
Of the many attempts to cut back on Dodd-Frank, at least
one bill is slowly moving forward. The Small Business Capital
Access and Job Preservation Act, H.R. 1082, would
exempt advisers to private equity funds from SEC registration under the
Investment Advisers Act.
The bill is straightforward:
Except as provided in this subsection, no investment
adviser shall be subject to the registration or reporting requirements of this
title with respect to the provision of investment advice relating to a private
equity fund or funds.
It still leaves you with issue of how to define "private
equity fund or funds." The SEC would have 6 months to define the term. Even if
the SEC extends the deadline for registration and even if this bill gets passed
quickly, that would leave a very narrow window for a private equity fund
manager to determine if they need to register.
The first contingency seems destined. Most fund manager
CCOs that I've talked to are not expecting the July 21 deadline to be in place.
Everyone is expecting the deadline to be extended into the first quarter of
2012. They're just wondering what is taking the SEC so long to make it
The bigger question is whether this bill be passed
quickly and whether it will be passed at all. Certainly there is some legislative
support for the exemption. It had been in earlier versions of Dodd-Frank. The
risks of private equity are not the same risks as hedge funds. On the other
hand, the some Congressional testimony about the bill focused on the leverage
buyout sector of private equity. Many associate this high leverage business
model with all of private equity.
The bill was forwarded by the Subcommittee on Capital
Markets and Government Sponsored Enterprises to the full House Committee on
Financial Services. It still has a long way to go and its future is uncertain.
Continue moving forward with implementing your compliance program.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.
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