House approves bill to ease SEC registration for private-equity advisers

Effort to thwart Dodd-Frank provision has prompted White House veto threat

Dec 5, 2013 @ 12:01 am

By Mark Schoeff Jr.

house of representatives, private equity, securities and exchange commission, mary jo white, dodd-frank, private equity
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The House wing of the U.S. Capitol (Bloomberg News)

The House approved a bill on Wednesday that would exempt many investment advisers to private-equity funds from oversight by the Securities and Exchange Commission.

The Republican-led chamber passed legislation, 254-159, that removes the SEC registration requirement for funds that haven't borrowed money and don't have outstanding principal that exceeds their invested capital by two times.

The measure is aimed at a provision of the Dodd-Frank financial reform law that compels private funds with more than $150 million in assets under management to register with the SEC.

The White House has threatened to veto the bill. Senate Democrats, who hold the majority in that chamber, haven't expressed any interest in legislation that would undo parts of the financial reform law.

Since January 2012, more than 1,600 private fund advisers have registered with the SEC for the first time. Dodd-Frank extended SEC oversight to private-equity funds in order to better monitor systemic risk to the financial system that the opaque vehicles might pose.

Both Democratic and Republican lawmakers said that the SEC should concentrate on regulating advisers who work with retail clients instead of devoting time and effort to overseeing private funds that are open only to accredited investors who meet certain income and net worth thresholds.

“While I wholeheartedly support the SEC's mission to protect investors, the agency's limited resources should be devoted first and foremost to protecting less sophisticated, retail 'mom and pop' investors who need this protection the most,” said Rep. Scott Garrett, R-N.J., chairman of the House Financial Services subcommittee on capital markets.

In an Oct. 4 letter to him, SEC Chairman Mary Jo White said that the commission had conducted 132 so-called presence examinations on private-equity advisers, with 62 still under way at that time.

“This initiative involved about 10% of the SEC's exam resources, allowing [National Exam Program] staff to reach more private-fund advisers while not significantly detracting from the examination of retail firms,” she wrote.

Supporters of the House bill called the Dodd-Frank provision regulatory overreach, arguing that private equity wasn't the cause of the 2008 financial crisis. They asserted that SEC registration costs crimp the funds' ability to help small businesses grow and create jobs at a time when economic growth is sluggish.

“Capital investments from private equity are more important than ever,” Rep. Robert Hurt, R-Va., the bill's sponsor, said during the floor debate.

The legislation drew support from 36 House Democrats.

“This is a bipartisan job-creation opportunity,” said Rep. Jim Cooper, D-Tenn.

But most House Democrats opposed the measure, arguing that it would exempt almost all private-equity funds from SEC oversight because the funds themselves don't pile up debt. Rather, they dump debt on the companies they target.

The bill created a “gaping loophole” in regulatory oversight, said Rep. Stephen Lynch, D-Mass.

“Systemic risk grows in the dark corners of our markets,” he said. “The more information we can gather, the safer we will be.”

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