SEC Proposes New Risk Requirements
The Securities and Exchange Commission proposed a rule on Jan. 25 that would require buyout fund managers registered as investment advisers to submit quarterly reports detailing their use of debt financing and other information in an effort to curb systemic risks to the economy.
The proposed rule, a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted last July, creates a new form called “Form PF” that would have to be submitted to the Financial Stability Oversight Council.
Under the rule, managers of funds with $1 billion or more of assets under management would, every quarter, have to answer questions about the extent of leverage their portfolio companies have incurred, the use of bridge financing, fund performance data, fund holdings by industry and geography, and any investments in financial institutions, among other information.
Large private fund advisers would have to file for the first time on Jan. 15, 2012, and provide subsequent filings within 15 days after the end of each subsequent calendar quarter. Managers of smaller funds, with less than $1 billion under management, would file Form PFs only once a year and would have to submit basic information about the funds they advise, according to the SEC.
Venture capital fund managers, and managers of buyout funds with $150 million or less under management, would be exempt from the requirement. The SEC is currently seeking public comment on the rule.
“Accredited Investor” Bar May Be Raised
The Securities and Exchange Commission has proposed changing its definition of “accredited investor” to make it harder to qualify. On the margins, the change could mean some investors would no longer be eligible to make commitments to buyout funds.
To qualify as an accredited investor under current rules, a person has to have an individual net worth, or joint net worth with a spouse, of at least $1 million, which could include the value of a primary residence. Under the new definition, being proposed as part of implementation of the Dodd-Frank Act, the equity a person has in their home would not be counted in calculating net worth. And if a home is underwater, meaning the amount owed on the mortgage is greater than the value of the home, the excess debt would be deducted in calculating net worth.
The Private Equity Growth Capital Council, the industry’s lobbying group, is keeping track of the issue, according to a source.