PE exemption bill faces tough road ahead

Despite being passed by the House of Representatives in a package of bills last week, a bill exempting certain firms from SEC registration isn’t a source of much optimism in the industry.

In its second appearance before the US House of Representatives, a bill exempting smaller private equity firms from registering with the Securities and Exchange Commission (SEC) has passed again, this time in a package of bipartisan legislation. Although some commentators are hopeful that the bill will continue gaining traction in the Senate, the industry is not counting its chickens just yet.
The measure, called the Small Business Capital Access and Job Preservation Act (HR 1105), originally passed in the House in December with a vote of 254-159, with 36 Democrats backing it. After failing to move in the Senate, HR 1105 was repackaged and combined with other bills in the Jobs for America Act (HR 4). The package passed by a vote of 253 to 163 last Thursday evening, with 32 House Democrats voting for the measure.
According to Ropes & Gray partner Jason E. Brown, it is “widely acknowledged” in the private equity community that the bill is unlikely to pass in the Senate or to be signed into law by the president. The bill is not expected to withstand the current Democrat-controlled Senate, and the most recent data from poll aggregator 538 predicts that Republicans have a 56.6 percent chance of winning the majority of seats in November. President Barack Obama has spoken out against the bill, meaning that it would have to pass by a veto-proof two-thirds majority in the Senate in order to bypass his disapproval.  
Still, lobbying groups like the Private Equity Growth Capital Council (PEGCC) see Thursday’s vote as a step in the right direction. “We are pleased that this bill passed the House in strong numbers and we look forward to working in the Senate to get HR 1105 moving there as well,” said PEGCC spokesperson James Maloney in an email to pfm.
HR 1105 might stand a better chance as a part of the HR 4 than it did alone, as it sits alongside more popular bills such as the Small Business Mergers, Acquisitions, Sales and Brokerage Simplification Act (HR 2274), which passed by a unanimous vote in both the Financial Services Committee and the House.
If it were to pass, the exemption bill would be a game changer for covered fund managers. Complying with the SEC’s increased scrutiny and presence exam initiative has proved to be a costly and time-consuming process. However, given the low likelihood that the bill will pass, firms are not expecting this to change anytime soon, according to Brown. 
“Everyone is assuming this will be the status quo for at least the near future,” he said in an interview with pfm. “No one in the industry really has a ‘when this bill passes’ plan.”