SEC Likely To Delay Registration Deadline

The private equity industry’s last-ditch campaign to repeal or augment a Dodd-Frank proposal that would require most firms to register as investment advisers with the Securities and Exchange Commissions gained more momentum recently, when SEC officials suggested the agency will give firms more time to comply with the requirement.

Meantime, the reality of what it will mean to register is sinking in even deeper. The industry’s main lobbying organization, Private Equity Growth Capital Council, wrote a letter to the SEC arguing for an exemption from having to fill out the Form PF–a new form designed to help the Financial Stability Oversight Council monitor financial risk in the economy.

“We anticipate that the commission will complete its implementing rulemaking by July 21, 2011 in accordance with the Dodd-Frank-Act, but expect in connection therewith that the Commission will consider providing additional time for investment advisers affected by these provisions to come into compliance,” Robert E. Plaze, an associate director with the SEC’s Division of Investment Management, wrote in an April 8 letter to David Massey, president of the North American Securities Administration Association Inc.

Though the SEC has not formally extended the July 21 deadline, sources close to the agency told Buyouts its officials would not suggest such an extension in writing if they were not highly confident that the SEC would do so.

The proposal, which is aimed at curbing systemic risk to the economy, calls for firms with $150 million or more in assets to register as investment advisers. Several mid-market firms argue it will cost them too much to come into compliance and will divert their attention from investing in small businesses. They also say it’s misguided, arguing that private equity does not pose a systemic risk that could undermine the entire economy. Rep. Robert Hurt, a Republican of Virginia, has introduced legislation that would effectively repeal the requirement.

“The SEC wants to delay the proposal in part to let the political process play out,” said Rob Morris, a managing partner at the Stamford, Conn.-based buyout shop Olympus Partners, who has been following the issue closely . “For one, if everyone registered tomorrow [the SEC] doesn’t have enough people to read the filings,” he said. “Secondly, they’re also lining up the timing with the playing out of the political process.”

Morris was one of several industry participants that filed comments with the agency regarding a controversial Form PF the SEC proposed that registered advisers submit on a quarterly or annual basis, with large firms managing more than $1 billion or more subject to the quarterly filing requirement. Large firms would provide information about leverage, about their use of bridge financing, and about their investments in banks and other financial institutions. Morris and others argue the Form PF is onerous and misguided.

The Form PF brouhaha has put the private equity industry’s trade group, the Private Equity Growth Capital Council, in an ironic position. The council has supported the government’s call for private equity firms to register, but its position has become more nuanced as more middle-market firms have joined its ranks and since the SEC has proposed the Form PF. Council President Doug Lowenstein submitted a 20-page comment spelling out its problems with Form PF, first and foremost being the council’s belief that private equity firms do not pose a systemic risk to the economy. “We’ve…always said that registration needed to be appropriately tailored,” a source close to the council told Buyouts.

SIDEBAR: SEC May Ease Up On Fund Marketing

In other regulatory news, the Securities and Exchange Commission may relax its “general solicitation” ban on private equity firms and other private companies from publicizing their fundraisings, according to an April 6 letter from SEC chairman Mary Shapiro to Rep. Darrell Issa of California, who chairs the Committee on Oversight and Government Reform.

An attorney told Buyouts he doubted such a relaxation would have much of an impact on private equity firms. “While fund sponsors would certainly find it helpful to be able to discuss fundraising efforts during the process, it might not be practical for them to take out advertisements about their fund offerings,” said Michael Earley, an associate at Jones Day who specializes on fund formation.

Earley added: “It would require a lot more detail from SEC about how it would relax the rule before we would change how we advise our clients.”