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Need To Know

Compensation Rule Could Affect PE

The U.S. Securities and Exchange Commission proposed a rule recently that could require registered advisers with $1 billion or more of assets to disclose how they pay professionals who help make investment decisions.

Although the SEC’s press release on the rule doesn’t mention private equity by name, it says the rule would apply to financial institutions, broker-dealers and investment advisers with $1 billion or more in assets. Under the Dodd-Frank financial reform law, private equity firms with $150 million or more of assets under management have to register as investment advisers.The SEC could effectively prohibit firms from maintaining incentive-based compensation agreements if the agency believes they encourage inappropriate risks under the rule, which the SEC rolled out as part of its enforcement role on Dodd-Frank. It could also result in the disclosure of sensitive payment agreements with certain executives.The proposed rule includes tighter restrictions for financial institutions with $50 billion or more in assets (which would capture several mega-firms). For example, it would require these firms to defer for three years at least 50 percent of any incentive-based compensation for executive officers, and award such compensation no faster than on a “pro-rata basis.”

Josh Lerner Wants Your Data

Josh Lerner has launched the Private Capital Research Institute to provide academics with more data with which to produce research into the pros and cons of investing by buyout and venture capital firms, as well as by angel investors and sovereign wealth funds, the Jacob H. Schiff Professor at Harvard Business School told Buyouts. “Today, there are a number of databases, each with their strengths and weaknesses, and its probably fair to say that for most professors and grad studs it’s hard to get access to that data,” Lerner said.Lerner and a research director at the institute for the last few months have started reaching out to at least “several dozen” general partners, limited partners, data vendors and other industry participants about sharing data for the project. The idea is to assemble a mass database consisting of fund performance and transaction details—who invested how much, where and when. The data will be anonymous and closely guarded by Institute staff; the institute also is looking to partner with an academic institution that has worked with secure data in the past, Lerner said. “This is not a case of putting this up on the Web for everyone to see. There would be limited access for researchers.”

SEC Already Stretched Too Thin

The U.S. Securities and Exchange Commission is about 400 employees short of what it needs to manage its current workload, according to a four-month internal review mandated by the Dodd-Frank Act, Bloomberg reported. The SEC is expected to enforce many more rules in the coming years as Dodd-Frank is implemented. These include the Volcker Rule, which limits the ability of bank holding companies to sponsor and to invest in private equity funds, and which requires registration as investment advisers by most private equity firms. Meanwhile, the SEC and the Commodity Futures Trading Commission, which are supposed to get increased funding under Dodd-Frank, are trying to attract people with Wall Street experience, Reuters reported. House Republicans, however, are determined to cut spending by the SEC and other federal agencies, not increase it.