Members of three private equity trade groups lined up today before the House Financial Services Committee to argue why venture capitalists should NOT be exempted from registering with the SEC under the Private Fund Investment Adviser Registration Act — and why private equity groups should get some breaks too.
First Argument: What’s in a name? “While I sympathize with venture funds that are too small to create systemic risk, I think it will prove very difficult to define a venture capital firm and distinguish it from most others,” said Douglas Lowenstein, president of the Private Equity Council. “I think it’s fairer to raise the threshold from $30 million to a level Congress deems appropriate. That would capture the larger firms, whether they’re venture capital or private equity or some other adviser, and treat ALL small advisers the same.”
Lowenstein said he was also thinking of the SEC and its need to preserve scarce SEC resources.
Second Argument: Anybody can be tempted. James Chanos, chairman of the Coalition of Private investment Companies, warned of “the growth of bubbles and fraud” if Congress lets venture capitalists off the hook with this law.
“We question whether any category of private funds should be relieved by virtue of their self-proclaimed investment strategy,” he said. “Fraud can be run with any asset class, and the definition of funds tends to blur over time.”