A bipartisan group of 27 members of the House of Representatives sent a letter to the Securities and Exchange Commission today, asking it to delay the March 30 deadline by which most firms have to register with the regulatory body, sister magazine Buyouts reported.
The letter, whose lead signatories are Robert Hurt, Republican of Virginia, and Jim Cooper, Democrat of Tennessee, does not recommend a replacement deadline date. Representatives from their respective offices were not immediately available.
The letter also seeks an exemption from the registration requirement for “advisers to private equity funds that have not borrowed and that do not have outstanding a principal amount in excess of twice their funded capital commitments.”
The rule, mandated by the Dodd-Frank financial reform law, requires private investment firms with $150 million or more in assets to register as investment advisers, which entails the development of detailed compliance policies, keeping tighter records and potentially submitting to SEC examinations.
In recent weeks, the tax treatment of carried interest has been the subject of much debate amid former Massachusetts governor and Bain Capital founder Mitt Romney’s presidential bid. But for smaller, mid-market buyout firms, registration is of serious concern too. These fund managers argue that the rule’s premise—to prevent systemic shocks to the economy—is misguided considering they hold companies for years at a time. Further, they say it is too costly—The Riverside Company, for example, has estimated that it would cost $350,000 to $500,000 in the first year to comply with the requirement.
In the letter, the representatives make it clear who would absorb the costs of complying with registration: portfolio companies. “Private equity firms will expend substantial resources for the establishment and ongoing operations of a compliance program, with many of these costs funneling down into the private equity firms’ portfolio companies, creating burdens for those managers as well,” the letter states.
The SEC has already delayed the deadline. Last June 22, it voted to push the deadline to March 30 from July 21, 2011.
The letter is signed by 17 Republicans and 10 Democrats, including Jim Moran, Democrat of Virginia; Ron Paul, the Texas Republican who is competing with Romney for his party’s nomination for president; and Mike Ross, Democrat of Arkansas.
Hurt and Cooper are perhaps trying to buy some more time for legislation they have co-sponsored to repeal the registration requirement.
In June—on the same day the SEC pushed the deadline back to March 30—the House Financial Services Committee passed the bill, called the “Small Business Capital Access and Job Preservation Act.” A source involved in lobbying for private equity who is familiar with the legislation said it is possible the legislation could pass a full House vote this congressional session but that it would be an “uphill climb” to pass a Senate vote while it is still controlled by the Democrats.