The Regulatory Landscape for Private Equity

The time for regulatory reform is nigh. The bulk of attention is directed at financial institutions and addressing systemic risk, but private equity is being caught in the regulatory wave. Current regulatory proposals have the potential to change the way private equity conducts business both domestically and internationally. Here are some of the significant issues:

The first possible regulatory change is the registration of private equity fund advisers. The current proposed House financial regulatory bill eliminates the “private adviser” exemption previously relied upon by many private equity funds to avoid registration with the Securities and Exchange Commission and other requirements under the Investment Advisers Act of 1940.

The House bill takes away this exemption and requires any adviser to a “private fund” to, among other items, register with the S.E.C. and become subject to S.E.C. examination. The House bill also creates a new exemption from these requirements for private equity firms with assets less than $150 million and venture capital funds. The Senate bill eliminates this exemption but then sets up a new exemption for private equity funds and family offices. Both these terms are to be defined by the S.E.C., as is what a venture capital fund is. The Senate bill also exempts funds with less than $100 million in assets under management.

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Author: Steven M. Davidoff