3) Changing Dodd-Frank Registration Requirements
Trump has said he wants to “dismantle” Dodd-Frank, the massive reform act passed by the Barack Obama administration in 2010 in response to the financial crisis. While he hasn’t elaborated on which parts may change or in what order, a Dodd-Frank roll-back plan that House Republicans proposed last year may provide some indication. Lawmakers are expected to introduce an updated version of the measure in the coming weeks.
The Financial Choice Act, as it’s known, would exempt private equity funds from registering with the SEC. That obligation was created by Dodd-Frank, which mandates the disclosure of information such as investment positions and credit risk. Private equity firms don’t pose systemic risk and the examination requirements impose unnecessary costs, according to a summary of the proposed legislation.
Since Dodd-Frank became law, firms such as KKR, Blackstone and Apollo Global Management LLC have paid tens of millions of dollars in fines after SEC examinations uncovered what regulators said were insufficient disclosures of some fee and expense practices to clients.
While eliminating registration requirements for all private equity firms may be an industry fantasy, there could be greater bipartisan political support for exempting more small firms, according to Josh Watson, a private-funds attorney at Morse Barnes-Brown & Pendleton. Under current rules, firms managing private funds with at least $150 million are required to register with the SEC.
“There seems to be some agreement on both sides of the political aisle that the $150 million threshold is too low and that the registration burdens on the smaller firms are significant,” Watson said. “If small to mid-sized managers are able to spend less of their resources on compliance, they will have more resources available for making and managing investments.”
While policy changes affecting the private equity industry -- and the political will to implement them -- are largely still unclear, one thing is certain: Dealmakers big and small are watching every move closely.
“There’s a real opportunity for regulatory and tax policy to go in a dramatically different direction and we’re looking very carefully at all the implications,” said John Finley, the chief legal officer at New York-based Blackstone, the world’s biggest private equity firm. “There’s a possibility that the changes could be pretty sweeping.”
This article was provided by Bloomberg News.