SEC faces flood of registration applicants
The US Securities and Exchange Commission has received nearly twice as many registration applications than previously projected as firms scrambled to register by today's deadline.
The US Securities and Exchange Commission estimates that it has received roughly 1,300 registration applications from private equity and hedge fund managers since 1 January 2012, according to a spokesperson, well north of the 750 total applications the SEC projected last year it would receive.
“It is interesting that we are seeing a mad rush to get the filings in, which…is evidence that there are a whole lot more advisors in the business than people might have appreciated,” counsel in Kaye Scholer’s Corporate Department Patrick Michel told Private Equity International. “It does not surprise me that there were probably more advisors out there operating in this space than necessarily the SEC knew.”
The US financial reform bill Dodd-Frank passed in 2010 mandated that private equity firms with $150 million or more of assets under management in the US register with the SEC. Registration will give the US government more oversight over managers, including the right to run inspections and forces firms to hire or designate a compliance officer.
The roughly 70 percent spike in the number of applications is not, however, expected to result in a less thorough review of managers by the SEC, Michel said.
“I don’t think the SEC wants to sacrifice the quality of a review, [but] it may affect the timing of reviews. Two years was their target for [reviewing] every advisor,” Michel said.
“That period of time may get longer and longer given that they have many more advisors. I think the effect of it will be that the SEC may have to be a little bit more creative about who gets reviewed when.”
While a backlog of applications may have little to no impact on some private equity managers, for others a longer period time between the registration deadline and when their firm is reviewed by regulators could yield more details about the nature of the SEC’s review process.
“Maybe you’re thinking you’ll get a lot of time to figure out what other [managers] are doing, what the SEC is looking for and how rigourous it will be,” Michel said. “GPs, depending on where they are in the cycle, will have either agnostic reactions or very severe reactions.”
Managers have until Friday to register, an extended deadline from the original date of 21 July, 2011 that gave GPs more time to designate a chief compliance officer, implement a compliance programme and file all necessary forms with the SEC.