Interpreting the fine print

The Dodd-Frank Act, which was enacted one year ago 21 July, marked the beginning of transformational change in the regulation of the private equity industry.

One year later, however, there are still several points of the legislation that have yet to be clarified.

The US Securities and Exchange Commission made some inroads in the past few weeks, when the agency explicitly laid out the guidelines for what kind of firm qualifies for a venture capital exemption. The SEC also formally extended the deadline for required registration to 30 March, 2012.

But, there are still questions, staring with Form PF.

Under the SEC’s Form PF proposal, registered firms would have to submit information on funds’ creditors, investor concentration and monthly performance data. Large firms (those managing $1 billion or more) would 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. But the SEC has yet to rule on exactly what firms will be required to report as regards those areas.

“Procedures and systems have to be put in place [at private equity firms], but in order to put systems in place, you have to know precisely what’s needed and when,” said one Boston-based lawyer. “That’s a huge concern and cause of confusion.”

Another area of concern is expected additional rules surrounding books and records, according to a New York-based lawyer.

“There will be additional books and records requests,” said the lawyer. “The SEC is starting to blur the line between what it means to be registered and being a public company.”

Hundreds of Dodd-Frank-related rulemakings remain a work in progress and, as a result, the effects of the legislation will not be fully understood for years.

PEM takes an in-depth look at the Dodd-Frank act in its forthcoming monthly newsletter.