Private equity firms may become increasingly targeted by the SEC and need to respond accordingly, panelists said today at the Dow Jones Private Equity Analyst Outlook conference. Many PE firms are hiring compliance officers to help them navigate the choppy seas of regulation.
Under a bill introduced by Paul Kanjorski (D., Pa.) last October, PE firms will have to register with the SEC and submit to periodic examinations. Firms will also have to get used to disclosing more information to the government (and their investors) than they normally would. The industry initially welcomed the changes, however, because principles realized they would be forced upon them anyway.
"Given the broader political environment, we as an industry must be open to registration. We supported including it in the original House bill," said Doug Lowenstein, founding president of the Private Equity Council, an industry group.
That the industry is receptive, however, doesn't necessarily mean all are excited for it. Indeed, Paul Atkins, the co-founder and managing director of Patomak Partners, said it's dangerous because the definition of a VC firm and a PE firm can too frequently oscillate. The SEC is going to be focusing heavily on PE, Atkins said, because "they're out to prove something."
With increased regulation, however, comes increased need for people to ensure items are being reported. Enter the compliance officer, a necessary addition to all PE firms.
To prepare for registration, "people looking to invest in PE are raising the bar," said Jon Persson, chief compliance officer at Geller & Company. "It will become your responsibility to make sure solicitors are accountable. Your arrangements are going to become public record, so you need to have a better sense of what those records look like."
Firms are hiring compliance officers, Persson said, to help with the inevitable paperwork and increased demand for in-house oversight.
More PE Hiring?
A different Dow Jones Private Equity Conference panel on investor focus in 2010 also stressed the need for competent managers at the top and in the middle.
"The most important shift and promising trend we've seen is the hiring and recruiting of operating professionals," said Thomas Murray, managing director, corporate partnerships at the Environmental Defense Fund.
Charles Brizius, managing director at THL Partners, agreed. "Even great managers can use outside help." He added that the operational focus on new talent has been a driving force in the industry.
Write to Julie Steinberg