Reed targets PE in Senate amendment

Reed’s amendment to the Senate’s financial regulatory reform bill would require private equity and venture capital fund managers with more than $100 million adviser to register with the SEC. The amendment would also ensure that the new advisor registration threshold does not weaken existing oversight.

US Senator Jack Reed (D-RI) unveiled an amendment to the Senate’s Wall Street reform bill that would require private equity funds, venture capital funds and hedge funds to register with the Securities and Exchange Commission.

Sen. Reed, in a conference call today, said this amendment closes the loophole on private equity and venture capital exemptions. Under the Dodd bill, only hedge funds would be required to register under the bill, and there are exemptions for other private pool advisors, including private equity and venture capital fund advisors.

“Hedge funds, private equity, and venture capital funds have played an important role in providing liquidity to our financial system and improving the efficiency of capital markets. But as their role has grown so have the risks they pose. This amendment will shut down loopholes and provide the SEC with long-overdue authority to examine and collect data from this key industry,” said Sen. Reed, chairman of the banking subcommittee on securities, insurance, and investment.

The Reed amendment is co-sponsored by Senators Sherrod Brown (D-OH) and Tim Johnson (D-SD).

“While I think the Dodd bill takes a good step forward by requiring hedge fund advisors to register with the SEC, I am concerned that advisors who today are managing hedge funds could tomorrow be operating a private equity or venture capital fund in order to avoid registration. It is important that we require registration by hedge funds, private equity and venture capital to collect the best data on these firms, fill regulatory gaps and prevent regulatory arbitrage,” said Sen. Johnson, a member of the banking committee, in a statement.

Agreeing on reform regulations and determining which asset classes should be included, has been a long road. Last month, financial reform legislation had stalled for a third time in the US Senate.

Once the Senate does approve some version of the legislation, it will have to be reconciled with a version passed by the House of Representatives last year. The House version exempts venture capital, but not private equity. The House version contains a $150 million assets under management threshold.

“These firms are an important part of our economic engine, but they can also present systemic risks and can defraud pension plans and other investors. Improving oversight of hedge funds and other private funds is vital to their sustainability and to our economy’s stability. This amendment will help modernise our outdated financial regulatory system, protect investors, and prevent fraud,” said Reed.