House passes PE exemption bill

A bill exempting private equity firms from SEC registration faces a tougher test in the Senate.

US House lawmakers voted on Wednesday to relieve private equity firms from registration and reporting requirements with the Securities and Exchange Commission (SEC), a key component of Dodd-Frank.

The Small Business Capital Access and Job Preservation Act (HR 1105) passed 254-159 in the Republican-controlled House. A total of 36 Democrats backed the measure.

The bill faces a tougher test in the Senate, where Democrats hold a slight majority. The Senate has yet to introduce a companion bill, according to a source with knowledge of the matter.

President Barack Obama has also threatened to veto the legislation, saying it is a “step backwards” from financial reform.

Private Equity Growth Capital Council head Steve Judge praised the bill, saying it “removes registration requirements that provide no appreciable investor protections, while significantly increasing the cost of compliance for our industry.”

Opponents of the bill argue that SEC registration provides investor protections.

During congressional testimony on the bill in March, AFL-CIO director of policy and special counsel, Damon Silvers, said that smaller investors have less power to negotiate these protections, especially during times when market conditions favor GPs.

“The bill’s passage would deny investors access to important information intended to increase transparency and accountability and to minimize conflicts of interest,” testified Silvers.

The private equity industry counters that fund investments are the result of careful negotiations made between fund advisors and sophisticated investors.