PE awaits Trump SEC pick for view on regulation going forward

All private equity eyes are on the SEC.

While many point to a potential rollback of the Dodd-Frank financial reform act as a factor in what could be an easing of scrutiny on the industry, a few sources see a more immediate impact.

Several industry people said they’re watching closely to see whom President-elect Donald Trump chooses as SEC chairman. The pick could provide a window into how aggressively the agency will regulate the industry.

To be sure, PE could see no change at all from the past few years, though two sources said Trump’s pick could ease the agency’s focus on private equity and shift resources to other areas. The SEC also has two open commissioner spots, and one more reopens next year.

PE a priority for Chairwoman White

Under Chairwoman Mary Jo White the agency has made PE regulation a priority. In the more than 3 1/2 years of White’s leadership, the agency has achieved several large settlements with private equity firms, mostly around issues of fees and expenses.

Earlier this year, Apollo Global Management settled with the SEC for $52.7 million, representing the agency’s largest settlement yet with a private equity firm. Apollo did not admit or deny wrongdoing.

“If there’s going to be an impact on private equity, you don’t need to go through Congress. You just need to change the SEC a bit,” a fund-formation attorney said. “That may take some of the pressure off the industry.”

Along these lines, Trump appointed former Republican SEC Commissioner Paul Atkins to his transition team to fill top financial posts in the administration, the Wall Street Journal reported. Some believe Trump could tap Atkins to step into the SEC chairmanship.

Either way, Atkins will have influence over the position. Atkins does not believe in heavy business regulation, the article said. He even opposed the SEC’s attempt to force hedge funds to register as investment advisers, according to the 2004 dissent by Atkins and Commissioner Cynthia Glassman. Part of his argument was that the SEC should devote its limited resources to asset classes that affected more people.

“If we fail to devote adequate resources and develop the necessary expertise to carry out effective risk-based examinations, we are providing a false sense of security by suggesting to the marketplace that, through registration, we have bathed hedge funds in ‘sunlight,’” Atkins wrote.

One industry source said it was not clear how quickly a new chair would be able to set priorities. Perhaps the biggest impact will come during the SEC’s budget process, which will determine the resources the agency has to fund its various priorities. “I’m not sure anything turns on a dime,” the industry source said.

LPs back regulation, transparency

LPs, meanwhile, are particularly interested in any rollback of SEC scrutiny on the industry. LPs have said they supported the SEC’s regulation of the industry, which they said revealed certain practices that needed to be brought to light.

A group of state and city comptrollers and treasurers asked the SEC last year for more and more frequent transparency from PE firms.

If industry scrutiny lightens, LPs may redouble their efforts to ensure transparency and disclosure from GPs, this person said.

“Having a regulator actively engaged and looking at these issues provided … reinforcement and encouragement to the industry” around the push for more transparency, the source said.

Any lessening of the regulator’s focus would push LPs to “look for ways in which they can preserve the level of disclosure [they’ve] achieved.”

Action Item: Check out Atkins’s dissent here: https://www.sec.gov/rules/proposed/ia-2266d.pdf

Photo: U.S. President-elect Donald Trump speaks at his election night rally in Manhattan on Nov. 9, 2016. Photo courtesy Reuters/Carlo Allegri