Executives from buyout firms ArcLight Capital Partners and Olympus Partners joined the Private Equity Growth Council and AFL-CIO in commenting on the SEC’s proposal that would require buyout fund managers registered as investment advisers to submit quarterly reports detailing their use of debt financing and other information.
Not surprisingly, PE commentators largely argued that the reports, called Form PFs, aren’t applicable to them because private equity firms don’t pose a systemic risk to the economy and, further, the reports are more geared toward hedge funds and other entities that trade securities on the public market.
Rob Morris of Olympus Partners pointed to the KKR-led takeover of Energy Future Holdings, which is struggling, as an example of how he believes the industry doesn’t pose systemic risk.
“The largest leverage buyout in history, $45 billion, is teetering on the edge of bankruptcy,” Morris wrote. “Can you even name it? The fact it is not a page one or even a page three story in the newspaper is testimony to the seamless integration of PE into the system. If it fails the PE firms will have a capital loss, the creditors will take ownership and the business will continue.”
One notable supporter of the rule was Richard L. Trumka, the president of the AFL-CIO, who penned a 10-pager in support. Trumka said buyout firms do pose a systemic risk because of “financial intermediaries’ exposures to LBO debt and the impact of LBOs on corporate equity prices,” noting that banks and other lenders provided $1.1 trillion in debt financing to LBOs between 2005 and 2007.
“We support the Proposed Rule, but believe it should be strengthened in a few key areas by requiring more frequent reporting…and adding additional disclosure requirements necessary to protect investors and prevent systemic risks,” Trumka wrote.
The PEGC, which supports the Dodd-Frank requirement that most firms register as investment advisers, requested that the SEC not require firms to file the reports, while others such as ArcLight’s Chief Risk Officer Thomas G. Kilgore requested firms have 120 days following each quarter to submit the form, rather than the 15 days the SEC initial proposal called for. To read the comments in depth, go here.