Fund Disclosures
The firms are required to complete for the SEC a confidential form, called Form PF, that includes valuations of holdings, liquidity characteristics, risk metrics and sources of borrowings. Under the proposal, private equity firms wouldn’t need to disclose that information on the form.
SEC regulations prohibit advertisements with testimonials about a firm or references to recommendations that have been profitable. The bill would allow that kind of marketing if it’s made to investors who exceed certain income or wealth thresholds.
"This is a welcome step for midsize private capital providers who help bolster the U.S. economy," Gary LaBranche, chief executive officer of the Association for Corporate Growth, which represents middle-market private equity firms and other service providers, said in a statement after the vote. "The bill’s thoughtful and modest reforms maintain important investor protections while modernizing the regulatory framework."
An earlier version of the bill had proposed exempting firms from providing regulatory brochures to some current and prospective clients, including pension funds, if the clients had received similar information through other documents. The brochures must include descriptions of the firms’ services, fees, disciplinary history, conflicts of interest and background information on key executives. An amendment to the bill was approved Friday that struck the exemption.
Pension Plans
“These thoughtful modifications show a commitment to improving the regulatory structure for private funds and we look forward to seeing this bill advance,” Mike Sommers, CEO of the American Investment Council, an industry lobbying group in Washington, said in an e-mail before the vote. “The bill would make the regulatory process more efficient and effective for both regulated entities and the regulators.”
The American Investment Council represents the largest private equity firms, including Blackstone, Apollo, KKR, Carlyle Group LP and TPG, as well as more than 30 others.
The California Public Employees’ Retirement System and the California State Teachers’ Retirement System, the two biggest U.S. pensions, have opposed the proposal. Information provided by private equity firms under required disclosures has helped purge the industry of certain inappropriate fee practices, CalSTRS CEO Jack Ehnes wrote in a June letter.
The House Financial Services Committee approved the bill by a 47-12 vote on June 16 after adopting an amendment to delete provisions in the introduced version that would have created additional exemptions from record-keeping and reporting requirements.