A financial regulatory overhaul unveiled last night by the Obama administration would impose additional federal oversight on hedge and private equity firms.
The government plans to give the Federal Reserve new powers to take over firms whose collapse would be seen as a danger to the economy. Firms considered too big to fail, which would presumably include mega-firms, have operated “completely outside of the supervisory framework” until now, according to the white paper.
Advisors to private equity, venture and hedge funds whose assets under management exceed “some modest threshold” would be required to register with the SEC under the Investment Advisors Act. Such advisors to the funds would be required to report any information on their client funds necessary for the government to determine if they pose a threat to the financial stability of the US.
US Treasury Secretary Timothy Geithner has pushed to require private investment funds to register with the SEC. The administration has not yet announced the size of firms that would be required to register.
A bill announced yesterday by Senate Banking Subcommittee Chairman Jack Reed would require registration for funds that manage more than $30 million in assets, one of several similar measures that have been introduced in the Senate this year.
Funds falling under the $30 million assets threshold would fall under state oversight, according to the Reed bill, which also authorizes the SEC to share fund data with other agencies. Morrison Cohen partner David Lerner has said firms with assets under $50 million may not survive if they are required to bring on more resources to comply with regulations.
The Private Equity Council, a lobbying group for the industry, supports Obama's proposal but concedes “it will result in new regulatory oversight for many private equity firms”.
“While we and most experts agree that private equity firms do not create systemic risk, we also support the concept of data collection from market participants and we look forward to reviewing more detailed proposals as the legislative process unfolds,” Douglas Lowenstein, president of the PEC, said in a statement.
The Obama proposal would also eliminate the Office of Thrift Supervision and create a national regulator for financial institutions, which could make it more difficult for private equity firms to clear regulatory hurdles in closing bank deals, Reuters reports.
More firms have set their sights on such deals of late, with Fortress, Lightyear Capital and Crestview Partners recently agreeing to invest up to $150 million each in Florida-based First Southern Bank. A consortium consisting of WL Ross & Co., The Carlyle Group and The Blackstone Group took control of another Florida-based lender, BankUnited, and Carlyle and Blackstone are also reportedly leading an investment group bidding for First Republic Bank, a private banking unit of Bank of America, according to Reuters.