Congress: VC Good, Buyouts Bad (But Don't Ask Us Why)
Text of the financial reform conference report was posted online earlier today, including the Volcker Rule provisions that would prevent banks from sponsoring or investing in private equity funds. The 1,974-page document will essentially serve as a draft to be edited over the next few days by a bicameral committee (opening statements this afternoon, real work begins tomorrow). We here at peHUB take the term "private equity" quite literally, which results in a broad interpretation that includes seed-stage angel investments all the way through leveraged mega-buyouts. Congress, however, implictly claims to have a more nuanced understanding. The bill makes reference to private equity in two different sections. The first is in regards to registration exemptions, in which "private equity" funds and "venture capital" funds each receive their own subsections. The second is in the Volcker Rule area, when only "private equity" funds are referenced. In other words, it would appear that banks would still be allowed to sponsor and invest in venture capital funds, were the current language to stand. What remains entirely unclear, however, is how "private equity" and "venture capital" would be distinguished from one another. You'd think Congress might have included some parameters, like investment holding periods or portfolio company size or the use of leverage. Instead, it simply punts -- telling the SEC to come up with definitions within a year from the bill's (expected) passage.
