President Obama today will propose an overhaul of the financial regulatory system, and the WaPo has obtained an 85-page white paper that lays out the specifics. The net result will be three new federal bureaucracies (four created, one erased). More important to peHUB readers is the following paragraph:
All advisers to hedge funds (and other private pools of capital, including private equity funds and venture capital funds) whose assets under management exceed some modest threshold should be required to register with the SEC under the Investment Advisers Act. All advisers should be required to report information on the funds they manage that is sufficient to address whether any fund poses a threat to financial stability.
This certainly seems more aimed at hedgies than at PE and VC funds, but Obama also wants to defend against firms skirting the rules by just altering their self-described classification. In other words, a hedge fund can’t suddenly call itself a VC fund, in order to avoid regulation. A byproduct is that there are unlikely to be different “modest threshold” of assets under management between the sub-sectors, which probably means most VC funds will actually be left out of the mix (assuming the threshold is in excess of one billion dollars).
A spokeswoman for the NVCA says that her organization believes the Obama Administration and Congress recognize the difference between VC and PE and hedge, despite the white paper’s lumping of them all together. She also said: “Obama is focusing on funds that pose a threat to financial stability, we strongly assert that VC, as important as we believe it is to economy, does not pose a threat to financial stability in U.S. markets. We have no leverage, don’t trade in public securities and people don’t rely on VC-managed funds for liquidity.”
The Private Equity Council is expected to issue its own statement later today, which would represent the sentiments of mega-buyout shops like Blackstone Group, Carlyle Group and KKR. My educated guess is that it won’t bark too loud at the registration requirements, although that could change as the actual disclosure requirements get fleshed out.
Here is a copy of the white paper:
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