Frank advocates changes to Dodd-Frank PE registration rules

“In the crisis situation, we erred on the side of maybe being too inclusive,” Frank said in a speech at Private Equity International’s CFO COO Forum in New York City Jan. 21. “I would seriously recommend that they look at raising that amount.”

While Frank hedged his remarks by saying he had not given the matter serious consideration in some time, his comments will likely be welcome news for smaller private equity managers that registered as investment advisers with the SEC. Critics of the registration requirement argue the rule has burdened small firms with unreasonably expensive compliance costs.

“I would be inclined to give more power to the regulators,” Frank said. “Give the SEC the power to adjust (the $150 million amount) upwards after a certain period of years.”

Frank did not endorse removing the registration requirement entirely, however. On Jan. 14, the U.S. House of Representatives passed legislation that would eliminate the registration requirement for certain private funds. After his speech, Frank told Buyouts that he was skeptical of the newly proposed legislation, called the ‘‘Promoting Job Creation and Reducing Small Business Burdens Act.’’

“I would have to hear a better argument,” he said. “I haven’t heard the argument for it, so I would start out being skeptical.” 

Frank expanded on the reasoning behind the registration requirement in his keynote speech, saying it was meant to examine the aggregate impact of private equity on the economy, and to determine if that impact represents a systemic risk.

“That is one of the reasons for the reporting that a lot of you think is a big pain in the ass,” he said. 

Frank also elaborated on the Volcker Rule, the part of the Dodd-Frank act that limits banks’ ability to sponsor or invest in private equity funds. One of the goals was to give federal regulators the tools to “get a better handle” on private equity and other investment activities, Frank said. After Dodd-Frank became law, the private equity and trading desks at many banks spun out into independent firms.

“We’re shifting risky activities out of the banks, and into these other entities,” Frank said. “The general sense we have is this: It is very unlikely that any one of those entities will by itself become systemically important. The problem would be if the cumulative effect of their activity presents a systemic risk.”