Another Argument For Back-ended Carry Distributions?
Buyout firms hardly buy into the argument that they could help trip another financial crisis. No matter. They now find themselves battling proposed rules limiting incentive-based compensation rooted in the premise that they could. The rules may also give limited partners a stronger argument for back-ended carry distributions. It’s yet more fallout from the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted last summer, which requires buyout shops with more than $150 million in assets under management to register as investment advisers with the Securities and Exchange Commission. (Although the SEC has indicated it may extend the July 21 deadline to register, industry observers say it is unlikely that grass-roots efforts will succeed to repeal the requirement altogether.) From the perspective of your run-of-the-mill buyout shop, the prospect of registering—necessitating the appointment of a compliance officer and the development of a compliance program—is viewed as burden enough. But Dodd-Frank has the SEC and other agencies piling ever more rules on their backs. This week the Private Equity Growth Capital Council weighed in with comments on one of the latest proposed rules, which would put limits on incentive-based compensation at covered financial institutions. Buyout shops with $1 billion more in assets—a good portion of the market—would likely have to comply. (Those with $50 billion or more in assets face additional restrictions.)
