The Securities and Exchange Commission has agreed to extend the deadline by which buyout firms with $150 million or more in assets need to register as investment advisers to March 30, 2012, from July 21. The move also gives proposed legislation that would repeal the requirement more time to work its way through Congress.
The agency also voted June 22 to require even exempt buyout firms to provide information to the SEC, although it does not appear they will be subject to routine examinations. Staff of the SEC’s investment management division suggested that exempt firms should file a limited version of Form ADV, the form registered advisers submit to the SEC. The form would require basic identifying information, information on private funds under advisement, disciplinary history at the firm and other business activities. It’s not clear how often exempt firms will have to report.
“My concern is that the commission is shaping a regulatory regime that ultimately will come at the expense of capital formation,” commissioner Troy Paredes, whom President George W. Bush appointed to the agency in 2008, said of so-called “exempt but reporting” firms. “The risk is that capital formation will be unduly hindered.”
Proponents of the registration rule, mandated by the Dodd-Frank financial reform law, say it will illuminate an opaque corner of high finance and help regulators curtail the type of systemic risk that helped tip the country into a financial abyss in 2008. Critics argue the rule is misguided because it puts undue compliance burdens on smaller firms that they say pose no threat to the larger economy. Registered firms will have to develop compliance policies, file annual paperwork, keep tighter records and potentially undergo SEC examinations, among other obligations. Such requirements distract smaller firms from investing in businesses and spurring economic growth, critics argue.
Meanwhile, the House Financial Services Committee on the same day passed H.R. 1082, the “Small Business Capital Access and Job Preservation Act,” which would repeal the registration requirement. The bill now goes to the full House of Representatives for a vote. The bill, introduced by Rep. Robert Hurt, Republican of Virginia, came after desperate a last-ditch campaign to remove the rule by several executives of mid-market buyout firms who realized, perhaps too late, how burdensome registration would be. At press time the odds seemed low that the bill would pass both the House and the Senate, let alone that President Barack Obama would repeal part of one of the signature legislative achievements of his first term.
Executives have offered various estimates of how much it would cost annually to be in compliance. Pam Hendrickson, COO of
“Delay is one step in the right direction,” said Rob Morris, a managing partner of the mid-market buyout shop