It was union versus lawmaker in the House on Thursday, facing off over the topic of exempting certain private equity firms from registration with the Securities and Exchange Commission.
A group of witnesses sat before the House Financial Services Committee providing expert testimony on a series of bills written to roll back certain Dodd-Frank provisions, which led to an animated exchange between Democrat Jim Himes, who favors exempting certain private equity firms from registration with the SEC, and a witness from the massive union AFL-CIO who is not.
In March, Republican Robert Hurt introduced legislation that would exempt private equity fund managers from SEC registration and reporting requirements instituted by Dodd-Frank. Himes is a co-sponsor of that bill, The Small Business Capital Access And Job Preservation Act .
During questioning Himes asked AFL-CIO director of policy and special counsel, Damon Silvers, to justify his group’s support of the Dodd-Frank provision.
“Where is the investor protection angle here?” Himes asked Silvers, after noting that large pension funds represented by the AFL-CIO were sophisticated investors able to negotiate partnership agreements with various protections and disclosure obligations.
“Our concern is that those funds are not the only funds out there,” answered Silvers, elaborating that smaller investors have less power to negotiate investor protections, especially during times when market conditions favor GPs. Silvers said he believes SEC registration provides smaller private equity investors a consistent level of protection.
During testimony Himes also questioned the notion that private equity firms represent a systemic risk. “Can anyone point to a leveraged buyout that went down because their banks or bondholders made unwise decisions that created systemic risk?”
Silvers remained silent for a few moments, leading Himes to say his lack of response was evidence that private equity firms do not represent a systemic risk.
Defending the industry on the debate over registration was Marc Reich, president of mid-market private equity firm Ironwood Capital, who was speaking on behalf of the Small Business Investor Alliance.
“SEC registration cost our firm $250,000, and an additional $100,000 every year thereafter in compliance costs,” said Reich. He argued the costs in registration are pushing smaller GPs to either raise larger funds or leave the marketplace. The result will be less capital available for smaller businesses, which larger funds have less appetite for, he argued.
After the hearing Hurt, who represents Virginia's 5th congressional district, made a case for passing The Small Business Capital Access And Job Preservation Act .
“As I travel my rural district, I constantly hear from Main Street business owners about the critical need to reduce unnecessary regulations in order to free up private capital. There is nothing more essential to creating jobs in our small towns than putting private capital on the streets.”
The bill will likely move forward to a subcommittee where it will be open for markup at a yet to be scheduled date, according to a spokesperson for Hurt.