Powerful US committee sets registration bill in motion

The US House Financial Services Committee has overwhelming approved a bill that would have major implications for the private equity industry.

The Private Fund Investment Adviser’s Registration Act, approved by a vote of 67-1, would require firms with more than $150 million in assets under management to register with the Securities and Exchange Commission. It will now be sent on to the full House of Representatives for a vote, and if passed, would then need approval by the Senate to become law.

“Advisors to financial firms must receive government oversight and we must understand the assets of financial firms, including for hedge funds, private equity firms, and other private pools of capital,” Paul Kanjorski, the senior member of the committee who introduced the bill, said in a statmeent. “Under this legislation, private investment funds would become subject to more scrutiny by the SEC and take more responsibility for their actions.”

We must understand the assets of financial firms, including for hedge funds, private equity firms, and other private pools of capital. Paul Kanjorski

Introduced on 15 October by Kanjorski, a Democrat from Pennsylvania and chairman of the capital markets subcommittee, the bill has already seen several revisions. It increased the assets under management threshold to $150 million from $30 million and also exempts venture firms and small business investment companies. SEC chief executive Mary Schapiro yesterday publicly opposed broad carve-outs that “could come back to haunt investors in later years” and vowed to work wtih Congress on the matter.

Venture firms, however, have not been completely carved out. The bill in its current form will allow venture capital firms to avoid the formal registration process, but they would still have to maintain records that the SEC deems necessary and provide annual reports. However, the bill also instructs the regulator to “identify and define the term ‘venture capital fund’”, before making exemptions – a task that may prove difficult.

SBICs, meanwhile, are licensed by the Small Business Administration, and are already subject to leverage limits, annual financial reporting requirements and onsite compliance examinations by the SBA.

“Unlike venture capital which is difficult to define and therefore received only a quasi-carve out, SBICs are now explicitly excluded from the bill,” said Brett Palmer, president of the National Association of Small Business Investment Companies. “The fact that SBICs have been clearly defined in law for over 50 years, with a specific publicly policy purpose of using the private equity market to provide capital to domestic small businesses, struck a chord with the policymakers.”