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Need To Know

Industry Trade Group: PE Activity On The Rise

Private equity activity continued to increase in the first quarter, reaching its highest level since the recession, according to the Private Equity Growth Capital Council’s recently released “Private Equity Index.”

The index is a composite measure of global private equity activity based on total direct investment, buyout transaction volume, fundraising, and the dollar value of private equity exits. The index measures 100 when all four components are at their 10-year moving average.

At the end of the first quarter, the index had reached 119.2, above its 10-year moving average of 100 but still far below its record high of 154.9, recorded during the fourth quarter of 2006, according to a press release from the lobbying group.

Some other findings from the council: buyout firms raised $24 billion in the first quarter, an increase of nearly 300 percent from its nadir in the fourth quarter of 2009; 18 private equity-backed IPOs raised $12.1 billion globally, compared to the 12 IPOs that raised $4.3 billion in the same period of 2010; and private equity firms typically had to provide equity checks of about 35.4 percent for deals.

More Investors May Be Shut Out Of PE

The Securities and Exchange Commission on May 10 proposed adjusting two tests that permit private equity firms and other investment advisers to charge their investors performance fees, which could result in a smaller pool of wealthy people available to invest in funds.

The Dodd-Frank financial reform bill calls for the SEC to make changes by July 21 and every five years thereafter to adjust for the effects of inflation; it also calls for the agency to exclude the value of a person’s primary residence when determining whether he or she is wealthy enough to be a “qualified client.” As a result, some wealthy people might not be eligible to invest in private equity funds.

Currently, the Investment Advisers Act allows an investment adviser to charge performance fees if the client has at least $750,000 under management with the adviser, or if the adviser believes the client has a net worth of more than $1.5 million. The SEC proposal calls for changing those thresholds to $1 million and $2 million, respectively.

The SEC is accepting comments on the proposal until July 11. To read the proposal in detail, visit http://www.sec.gov/rules/proposed/2011/ia-3198.pdf.

PE Registration Exemption Bill Clears Hurdle

A bit of good news for buyout shops fighting the SEC registration requirement: The subcommittee on capital markets and government sponsored enterprises earlier this month approved H.R. 1082, the “Small Business Capital Access and Job Preservation Act,” which would repeal a Dodd-Frank financial reform law requirement that most private equity firms register with the SEC as an investment adviser. The bill, introduced by Rep. Robert Hurt of Virginia, has since been referred to the full House Financial Services Committee.