House approves bill to ease private equity SEC registration

The House of Representatives wing of the U.S. Capitol Bloomberg News

By Mark Schoeff Jr.

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 have not borrowed money and do not have outstanding principal that exceeds by two times their invested capital.

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, have not 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. The financial reform law extended SEC oversight to the funds in order to better monitor systemic risk to the financial system that the opaque vehicles might pose.

Both Republican and Democratic lawmakers asserted 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 Mr. Garrett, SEC Chairman Mary Jo White said that the SEC had conducted 132 so-called presence examinations on private equity advisers, with 62 still underway, 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,” Ms. White wrote.

Supporters of the House bill called the Dodd-Frank provision regulatory overreach, arguing that private equity was not 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 a! t a time when economic growth is sluggish.

“Capital investments from private equity are more important than ever,” said Rep. Robert Hurt, R-Va., the bill's sponsor, 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 laden debt on the companies they target.

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

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