SEC registration looms for private equity

Under a compromise between the US Senate and House of Representatives, most private equity funds will have to register with the SEC, while venture capital firms will be exempt.

Private equity firms will have to register with the Securities and Exchange Commission following negotiations between the US Senate and House of Representatives.

The US Senate on Monday, in a joint session of Congress, accepted key amendments from the House including the provision to strike the Senate exemption of investment advisors to private equity firms from registering from the SEC. Venture capital firms, however remain exempt from SEC registration, but will be required to keep records and provide reports to the SEC.

Under the new regulations, private equity firms will need to establish formal compliance policies to outline how they would deal with potential conflicts of interest. Registration also means firms need to designate or hire a compliance officer, as well as face regular inspections by the SEC.

The implications for private equity firms are among the industry-changing issues to be addressed next week in New York at PEI's Private Fund Compliance Forum.

Barney Frank, the Democratic chairman of the House Committee on Financial Services, announcing the amendments in the joint session, proposed that the Senate bill add a House provision that exempts managers of private equity funds with less than $150 million in assets under management from registering. The Senate bill listed the threshold at $100 million.

The House bill also had an amendment that required the disclosure of certain private fund information to investors, prospective investors, counterparties and creditors. The Senate did not, however, accept that provision and the details of what kind of information was never released.

The final version of the bill will give private equity firms a year to comply with the new regulations, with the deadline of July 2011.

Agreeing on reform regulations and determining which asset classes should be included, has been a long road with much debate.

In a last ditch effort last month, Democratic Senator Jack Reed proposed an amendment requiring both venture capital and private equity firms to register.

Senator Reed, however, accepted the compromise. “It would be better in terms of a regulatory standpoint to include all of these pools under registration,” Reed said in a statement.