Mid-market lobby group Association for Corporate Growth has been making efforts for policy reforms in private equity, such as by supporting Bill HR5424 introduced last year to revamp the Investment Advisers Act of 1940.
Its former vice-president of public policy Amber Landis, who left the organisation on Friday to join Michigan-based Spectrum Health focusing on government outreach, spoke with Private Equity International about ACG’s achievements for mid-market private equity during her tenure.
What should mid-market private equity managers be thinking about in 2017?
Two weeks ago, ACG released its first iteration of the Private Equity Regulatory and Compliance Principles, known as “PERC Principles.” These principles address key hot topics in regulatory compliance, namely fee and expense disclosures, co-investments, valuations and cybersecurity. These are the core issues that touch ACG’s membership and continue to be a focus of industry practitioners. I would say cybersecurity is the issue of the day, as it was included in the Securities and Exchange Commission’s list of 2017 Exam Priorities. Cybersecurity is a challenge especially for small- and mid-sized managers who don’t have a chief information officer or chief technology officer at their firm, and have limited resources for cybersecurity systems. However, GPs do place a priority on cybersecurity and are doing the best they can to manage risks for the firm, their LPs and portfolio companies.
With co-investment and fees and expenses, it’s important to make sure there’s a discussion of the GP’s practices in their limited partner agreement, private placement memorandum or any offering documents. Document, document, document. ACG members are not hesitant to make these disclosures, so they are already happening but it’s something some firms can improve upon.
ACG is an active lobbying organisation in Washington, DC. What progress has been made during your tenure at the organisation, and what’s ahead for private equity?
On regulatory reform, last year ACG helped lead the way on a bipartisan bill in the House, HR5424, the Investment Advisers Modernization Act. It included modest modifications to the Investment Advisers Act of 1940 to help private equity, especially the small- and mid-sized managers. Nothing happens in Washington unless it’s bipartisan, so the goal was working with both Democrats and Republicans. The bill passed in the House but didn’t reach the Senate for consideration.
This year we know the Chairman of the House Financial Services Committee [Jeb Hensarling, R-TX], is sponsoring the Financial Choice Act. The bill in the 114th Congress had a lot of interesting things in it for private equity [such as a clause exempting private equity fund advisers from having to register] and would be a welcomed improvement for the industry. ACG has not seen the language in the current session of Congress and has stayed neutral on Financial Choice Act, but looks forward to supporting regulatory reform more broadly for the private equity industry. It is important to note that the Senate Chamber has never taken a piece of legislation focused on private equity, so there are opportunities to have really great in-depth discussions on the evolution of the industry with Senate members.
What are the top milestones ACG achieved during your tenure?
ACG helped create the Congressional Caucus for Middle Market Growth in 2014, supported by the National Center for the Middle Market out of the Ohio State University. This caucus celebrates a segment of the economy that’s often forgotten – the middle market. People tend to focus on small businesses and large corporations that are already represented, but no one is talking about the mid-market and how it employs 48 million Americans and provides one third of the gross domestic product. ACG worked with four members of Congress with bipartisan support to build this caucus which will resume in the current session of congress.
I also feel really great about leaving ACG with the Private Equity Regulatory and Compliance Principles [released on 15 February]. The list was drafted by volunteers who serve as chief financial officers of private equity firms. They’re tremendously busy people, but they gave their dedication. That sends a strong message to the industry.
Any time an industry can come together, I think that’s a welcomed step. Regulators won’t take a formal position on the principles, but I think they’ve acknowledged the ACG is trying to be helpful to our members in the area of compliance.