The US House of Representatives passed a bill last week that would require private equity and private equity real estate funds managing more than $150 million to register with the US Securities and Exchange Commission.
The registration provision, included in a larger bill called the Wall Street Reform and Consumer Protection Act of 2009, passed by a vote of 223 to 202. The Wall Street Reform bill was the second passed by the US House last week to include new regulations affecting private equity firms.
Legislators also last week approved the Tax Extenders Act of 2009, which included a more than doubling of the tax on carried interest from 15 percent to as high as 39.6 percent.
Funds managing more than $150 million will have to register as investment advisors with the SEC no later than one year after the bill becomes law. The bill also increases the disclosure requirements for such advisors, stipulating that they share, at a minimum, the amount of their assets under management, their use of leverage (including off-balance sheet leverage), counter-party credit risk exposures, trading and investment positions, and trading practices.
Small Business Investment Companies (SBIC) and venture capital firms are excluded from registering with the SEC, but would still have to maintain such records the SEC deems necessary, as well as provide annual reports.
The costs of compliance are estimated to amount to around $50,000. For those firms who have to hire a chief compliance officer, that number could rise to $300,000.
Whether the bill gets approval in the Senate in its current form is uncertain. Christopher Dodd, chairman of the US Senate Committee on Banking, Housing, and Urban Affairs, is creating a draft version of a bill for the Senate that would exclude private equity from the registration requirements. The draft version would have to be approved by the committee before it goes to the full Senate for a vote.
Market sources say there is no way to know which version will prevail in the end.