In an effort to better regulate hedge fund advisors, The California Department of Corporations is reviewing a 2002 law that exempted certain investment advisors from registering with the department. It has also unveiled language that may affect private equity firms.
According to the proposed amendment, buyout firms will need to register as hedge funds with the CDC unless they prove themselves to be a ?venture capital company.?
The proposed amendment would require any other advisor that meets California's definition of an investment advisor to register with the department, which includes anyone who has a place of business or more than six clients in the state of California and is exempt from registration with the Securities and Exchange Commission by virtue of the ?de minimis exemption? contained in Section 203(b)(3) of the Investment Advisors Act of 1940.
The proposal for this revision cites only an SEC hedge fund study from 2003 and language from the SEC's 2004 failed bid to require hedge fund registration in justifying such an action given hedge fund growth, an upswing in hedge fund related fraud and retail investors' involvement in the asset class. The 2002 law was worded vaguely enough that many hedge funds could still be exempted from registering. Under the new language, plenty of private equity funds could be forced to register unless they can qualify for the venture capital company exemption.
In order to qualify as a venture capital company, a buyout firm will have to have at least one half its long-term assets invested in ?venture capital investments? or ?derivative investments.? A venture capital investment is defined as ?an acquisition of securities in an operating company as to which the [investor]? has? management rights,? which means that the investor has the right to substantially influence, or provide significant guidance and counsel ?concerning the management, operations or business objectives of the operating company in which the investment is made.? To qualify as such an ?operating company? ? the entity the GP owns ? must be ?primarily engaged? in the production or sale? of a product or service other than the management or investment of capital.?
Consortium deals that don't list the private equity firm as the lead investors or later stage investments without sufficient board seats or other management rights won't count as venture capital investments for purposes of the exemption. Should the amendment force a wave of hedge funds to register, private equity firms will have more reason to tout their operational focus.
Blackstone hires healthcare czar
The Blackstone Group has created a new role for Alan Muney, a veteran pediatrician and managed healthcare expert, to manage healthcare benefits across the firm's 52 private equity portfolio companies. Muney will become an executive director at Blackstone's private equity group and work alongside James Quella, who is responsible for monitoring the strategy and operations of Blackstone's portfolio companies. Before joining Blackstone, Muney was responsible for medical programs and policies and oversaw physician and hospital relationships as the executive vice president and chief medical officer of Oxford Health Plans and chief medical officer of United Healthcare of the Northeast region. Both companies provide health benefit plans in the US. Muney's hiring is part of a broader trend in private equity as firms seek to aggregate the buying power of portfolio companies. Similar cost-cutting programs are being developed with regard to insurance, travel, shipping and other expenses.
SVG adds marketing and corporate finance directors
UK investor SVG Capital's management arm SVG Advisers has appointed James Witter and Sharad Rathke as directors for its marketing and corporate finance teams respectively. Witter will work alongside SVG director Simon Lund on the development, marketing and distribution of private equity products. Rathke will have responsibility for the origination, structuring and development of products. Witter has more than 20 years experience within the financial markets, joining SVG from Japanese bank Nomura, where he was head of UK and Ireland, global markets Europe. Before this, he was head of private equity capital markets at the bank. He has also held senior positions at banks Merrill Lynch International and Dresdner Kleinwort Benson. Rathke was previously a senior director at KPMG's private equity group in London, advising UK and European firms on large buyouts, heading numerous complex financial investigations across various industries. The appointments follow three additions to the private equity fund selection team in September. The firm recruited Owen James to its London headquarters as well as Michael Nugent and Michael Roth to its Boston office.
Carlyle names new PR chief for the Americas
The Carlyle Group has appointed Ellen Gonda to its newly created post of director of communications for North and South America. Gonda was previously a director for corporate and financial communications at the Brunswick Group, an international communications consulting group.
?Bringing in an experienced person like Ellen to effectively be my deputy in these regions will enable me to do more strategic thinking and brand positioning,? Carlyle director of communications Chris Ullman told PrivateEquityOnline. Ullman said that the decision to create Gonda's position was driven by the dramatic increase in the volume of Carlyle's business in recent years, and a corresponding increase in demands on his department. The expansion of Carlyle's communication team will likely result in three more hires, one in London and two in Asia, Ullman said. Currently, Carlyle's PR team consists solely of Ullman and three other executives.