News & Analysis

Buyout firms criticise new SEC reporting duties

The SEC’s proposed 'Form PF' designed to measure private funds systemic risk to the economy is being labelled too onerous by the PEGCC.

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Private equity firms should not be subject to new reporting requirements used to monitor systemic risk posed by private funds, argued industry lobbying group The Private Equity Growth Capital Council in a letter submitted to the Securities and Exchange Commission last week.

Under the guise of Dodd-Frank, the SEC is proposing firms registered as investment advisors electronically submit a new “Form PF”, which would be held on a “confidential basis” and only shared with other government agencies for the purposes of assessing systematic risk. 

The SEC argues bridge loans (short-term loans offered by a bank as temporary financing for a buyout) and over-leveraging portfolio companies to drive returns are two of private equity’s potential risks to the economy.

The PEGCC, which counts amongst its members The Blackstone Group and The Carlyle Group, disagreed, saying private equity poses no systematic risk to the economy. “Focusing on bridge loans places a disproportionate emphasis on a small segment of leveraged buyout financings,” said the group in response to a consultation period over the proposals which ended last week. 

There is no meaningful financial interconnection between a private equity sponsor, the funds that it manages or the companies in which those funds invest

PEGCC

The group added: “There is no meaningful financial interconnection between a private equity sponsor, the funds that it manages or the companies in which those funds invest.”

The SEC proposal calls for registered firms to submit information on funds’ creditors, investor concentration and monthly performance data. Large firms (those managing $1 billion or more) will need to submit further information on a range of items including bridge loans, leverage placed on portfolio companies and a breakdown of funds’ investments by industry.

The proposal calls for large firms to file Form PF on a quarterly basis beginning 15, January 2012. Smaller firms would file annually beginning 31 March, 2012.

The proposed disclosures on Form PF are not directly connected to the current Form ADV required of registered investment advisers, noted a client memo from law firm Pepper Hamilton.