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Schapiro opposes ‘exceptions’ in registration proposal

The SEC chairman today said she would seek to avoid ‘broad carve-outs’ within proposed legislation that would require private funds to register as investment advisors, possibly referring to at least one effort to exempt venture capital funds from the process.

At the annual conference of the Securities Industry and Financial Markets Association today in New York, Securities and Exchange Commission chairman Mary Schapiro said she would oppose “exceptions” to a bill currently before Congress that could require hedge, private equity, and venture capital funds to register as investment advisers with the SEC.

“The Administration has recommended — and I support — a requirement that advisers to private funds register with the SEC,” she said, according to the text of her prepared remarks. “And, I will work with Congress to avoid creating broad new carve-outs or exceptions that could come back to haunt investors in later years.”

In its current form, the Private Fund Investment Advisers Registration Act would abolish the private funds exemption from the Investment Advisers Act, requiring all those who manage more than $30 million to go through the expensive and time-consuming process of registration. The House Financial Services Committee is set to begin reviewing the bill today.

Earlier this month, Representative Paul Kanjorski, chairman of the House Financial Services Capital Markets Subcommittee, proposed an amendment to the bill which would exempt venture capital funds from having to register with the SEC, on the grounds that such funds typically do not use leverage and so do not pose a systemic risk to broader financial markets.

It is not clear how the SEC would define “venture capital”: the bill would insert language into the Act that instructs the SEC to “identify and define the term ‘venture capital fund’ and…provide an adviser to such a fund an exemption from the registration requirements under this section.”