US Private Equity Funds Might Be Regulated Greater According To The Treasury Proposal

US private equity funds may have to adhere to increased government regulation in accordance with proposals from Timothy Geithner, US Treasury Secretary, as part of the Obama Administration's push for greater financial oversight. Private equity funds do not currently have

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US private equity funds may have to adhere to increased government regulation in accordance with proposals from Timothy Geithner, US Treasury Secretary, as part of the Obama Administration’s push for greater financial oversight.

Private equity funds do not currently have to register with the Securities and Exchange Commission, but according to Geithner the government, “should require that leveraged private investment funds with assets under management over a certain threshold register with the SEC to provide greater capacity for protecting investors and market integrity.”

Speaking at the House Financial Services Committee yesterday, the Treasury Secretary proposed that a body would then act on the information obtained by the SEC by deciding whether funds should have to operate under new regulatory measures.

“The SEC should share the reports that it receives from the funds with the entity responsible for oversight of systemically important firms, which would then determine whether funds pose a systemic threat and should be subjected to prudential standards,” says Geithner.

Under the standards, private equity funds seen as posing a systemic risk would have to disclose the names of LPs investing, the size of the fund and levels of any leverage used to make investments.

“The regulatory reporting requirements for such funds should require reporting, on a confidential basis, information necessary to assess whether the fund or fund family is so large or highly leveraged that it poses a threat to financial stability,” says Geithner.

Douglas Lowenstein, private equity council president, has responded to Geithner’s implication that private equity funds pose such a risk.

“We believe that private equity investments do not create systemic risk,” says Douglas Lowenstein. “Private equity firms invest in companies, not exotic securities, and their investors are long-term investors, eliminating the ‘run on the bank’ type of risk that helped create the current financial crisis.”

Lowenstein says that the Council is looking forward to working alongside Congress and the Obama Administration to ensure that any new regualtion will protect the American economy, but hopes that legislation will not impose, “undue burdens on private equity firms seeking to make investments that create jobs and make companies more competitive.”

D.C.

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