April 15, 2011 / 10:02 PM / 9 years ago

Proposed buyout firm rule is onerous-lobby group

* Group argues private equity doesn’t cause systemic risk

* Says requirements are onerous and discriminatory

By Megan Davies

NEW YORK, April 15 (Reuters) - Private equity firms should not be “singled out” for a “discriminatory and onerous” regulatory reporting regime, the lobby group for the private equity industry said in a letter to the U.S. Securities and Exchange Commission.

The letter, dated April 12 and distributed by the industry group on Friday, was in response to proposed rules that would require registered investment advisors to file detailed information, such as how their portfolio companies are financed.

The Private Equity Growth Capital Council (PEGCC) argues that private equity firms should not have to file “Form PF”, as the information requested is “not pertinent to systemic risk”. Moreover, it argues private equity firms do not themselves pose a systemic risk.

PEGCC member firms include Blackstone Group (BX.N), Carlyle Group [CYL.UL], Madison Dearborn and Sun Capital Partners.

“Private equity firms should not be singled out among all shareholders of businesses in the United States to be subject to report on their borrowing decisions,” the PEGCC said in a news release on Friday.

The suggested requirements are part of the Dodd-Frank financial regulation law, approved in July of 2010 by Democrats with the strong support of U.S. President Barack Obama, over the opposition of all but a few Republicans.

Dodd-Frank aims to reduce excessive risk taking and imposes new oversight on many areas of financial activity, such as the roughly $600 trillion over-the-counter derivatives market, including credit default swaps like those that caused the bailout of insurer American International Group (AIG.N).

The PEGCC is particularly critical of a reporting requirement designed to monitor how private equity portfolio companies use leverage.

Private equity firms commonly take on debt to buy companies in transactions known as leveraged buyouts and the SEC’s proposals highlight this as a concern.

“One aspect of the private equity business model that some have identified as potentially having systemic implications is its method of financing buyouts of companies,” the SEC’s proposal says.

The PEGCC said in its comment letter that concerns about lending, if valid, should be addressed “through prudential regulation of the lending institution - not by imposing reporting burdens on private equity funds”.

It argues that if the SEC does decide to require private equity firms to file Form PF, the requirement should not occur more than once a year.

The proposed rule has received a slew of comments from individual private equity and investment firms.

The SEC will review the comments and would need to vote on a final rule before it can be implemented. Most Dodd-Frank rules are supposed to be approved by July, although the SEC expects to miss some deadlines. (Additional reporting by Sarah Lynch in Washington; Editing by Tim Dobbyn)

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