‘A collective sigh of relief’

The US Securities and Exchange Commission announced late Friday that the agency is considering extending the deadline by which most private equity firms must register into the first quarter of 2012. Registration will give the US government more oversight over managers, including the right to run inspections and force firms to hire or designate a compliance officer.

The commission has not yet made a final determination on extending the deadline, but is expected to provide firms more time, according to Robert Plaze, associate director with the SEC. It’s not clear when the commission will make a final decision on whether to extend the deadline.

Are private equity managers breathing a collective sigh of relief? You bet.

“I think this will be a relief to all unregistered private equity firms,” said Jason Brown, a partner at law firm Ropes & Gray, who has worked with firms on registration.

According to another New York-based lawyer, most of his clients that have yet to register are not only on track, but ahead of schedule. However, there are a few that desperately need the extra time. “There are two firms that underestimated how much was required for this process and they are very hopeful an extension will be granted,” he said. “It wasn’t panic-mode, but it was getting more stressful.”

The US financial reform bill “Dodd-Frank”, which passed last year, mandated that private equity firms with $150 million or more of assets under management in the US register with the SEC.

Dodd-Frank gave managers one year to register with the SEC, which may seem like a lot of time, but there are layers of requirements to address. And it’s a costly process.

In the meantime, GPs have continued to communicate with the US Congress over the requirements.

The Riverside Company’s chief operating officer Pam Hendrickson testified in front of Congress last month that the registration requirements would “impose an undue burden on private equity firms – especially small and mid-sized firms – in terms of both money and time”, according to a transcript of her prepared testimony.

Many firms have been preparing to meet the 21 July deadline, while some firms like Bain Capital, Kohlberg Kravis Roberts, The Carlyle Group and TPG Capital have already registered with the SEC. Some private equity managers have been wary of registering mainly because of compliance costs as well as future regulatory scrutiny in the form of audits and other compliance issues.

While the majority of private equity firms are likely on track for 21 July, for the managers nearing crunch time, an extension would of course be welcome news.