Take two

As previously reported in Private Equity Manager, hedge funds are taking advantage of a loophole in the new SEC rule requiring the registration of hedge funds. The rule, which came into effect this month, allows hedge funds to circumvent the registration requirement for ?private funds? through the two-year lock-up qualification, which was originally designed to exclude private equity funds – which manage relatively illiquid assets that are less subject to trading abuse – from having to register.

Since then, the SEC has issued guidance via a no-action letter on the new rule with the intention of responding to queries posed by hedge funds and their counsel. The guidance addresses, among other issues, the definition of the two-year period and special circumstances for which the registration rule does or does not apply.

Notable among the points addressed within the guidance is the clarification that compensation for services – e.g. carried interest – that is withdrawn from the fund within two years of its establishment will not cause a fund to fall into the ?private funds? category. Also, gains or income made to the fund would be ?assigned the date of the investor's original investment to which those allocated gains or income are attributable,? and therefore can be redeemed two years from the vehicle's date of creation without qualifying the fund as a ?private fund.?

However, the guidance still does not address the fact that some hedge funds are escaping the registration requirement by setting up their lockup periods to exceed two years, nor does it address if and how the SEC will clarify the distinction it makes between hedge funds and private equity funds beyond the twoyear lockup period.

A number of private equity funds – particularly the larger ones with diversified operations – are already registered with the SEC. However, a more widespread registration rule that applies to private equity funds would not only increase administrative costs and paperwork, but it would also create what is widely viewed as unnecessary regulation of an asset class for which such registration requirements would have limited benefits for their investors and the general public.

JE Robert hires real estate CFO
JE Robert Companies, which operates private equity real estate division JER Partners, has hired Michael McGillis as a chief financial officer primarily in charge of the real estate activities. McGillis joins the company from Freddie Mac, where he was a vice president of corporate and regulatory accounting, reporting and analysis, according to a press release. McGillis will report to the CFO of JE Roberts Companies, Tae-Sik Yoon. He will be based in the company's McLean, Virginia headquarters. JER Partners invests in office, retail, multi-family and industrial properties. It also invests in commercial mortgage-backed securities, hospitality and healthcare-related properties.

TH Lee adds operating function
Ahead of a massive fundraising, Boston-based Thomas H. Lee Partners has announced the hiring of Richard Bressler, a top Viacom executive, as a managing director in charge of providing services to portfolio companies. Bressler will preside over the newly formed Strategic Resource Group (see Dialogue p. 31). Bressler is a long-time executive from Viacom, where he was most recently chief financial officer. Prior to Viacom Bressler was chairman and chief executive officer of Time Warner Digital Media, a unit of Time Warner. Bressler will join THL Partners as one of 13 senior partners. The firm is reportedly targeting $8 billion for its next buyout fund. At the same time, the firm's founder, Thomas H. Lee, is negotiating terms of his separation from the firm.

ISIS launches UK Venture Capital Trust
ISIS Equity Partners is set to launch a Venture Capital Trust (VCT) that will invest in companies traded on the AIM stock market in London. The vehicle will be marketed under the Baronsmead brand. The VCT will seek to raise up to £20 million ($35 million; €29 million). Baronsmead will aim to build a portfolio of 40 to 50 AIM-traded investments, according to a press release. ISIS, the manager of the vehicle, will deploy Henrietta Marsh as the dedicated AIM manager. Marsh worked at private equity firm 3i for 14 years. Dividends from VCTs are paid tax free to shareholders, and capital gains are similarly tax free. AIM, launched in 1995, is a stock market for smaller, growing companies. It currently has over 1,500 companies listed. ISIS has offices in London, Birmingham and Manchester. It manages a fund with £517 million in assets.

Adams Street launches direct LBO fund
Fund of funds manager Adams Street Partners is raising a separate co-investment fund dedicated exclusively to buyouts. The new vehicle has a cap of $250 million. Chicago-based Adams Street has made direct investments in the past, but historically the group has leaned toward venture capital when pursuing this strategy. The new fund represents the first time it will go after the buyouts space with a dedicated co-investment vehicle. The firm is currently raising Adams Street Partnership Fund, which has a reported $1.5 billion target. Speaking to sister publication PrivateEquityOnline, Gary Fencik, head of business development at Adams Street, said: ?The environment for buyout co-investments today requires a larger capital commitment than we would be able to make from our current direct fund.? The fund will invest both in the US and Europe.

TPG, Newbridge steal GE Asia vet
Texas Pacific Group and its Asian affiliate Newbridge Capital have poached General Electric veteran Steven Schneider to serve as a Hong Kong-based operating partner for both firms. In his previous roles at General Electric, Schneider had served as the president and chief executive of GE Asia Pacific.