In January, the private equity trade publications widely reported on what looked to be an important political talking point in their campaign to roll back regulations imposed on them as part of Dodd Frank. Mind you, these new rules were weak tea and simply put part of their activities under the purview of the Securities and Exchange Commission by requiring them to register as investment advisers (the broker-dealer activities of private equity firms are still unsupervised, a big regulatory gap). As we’ve chronicled, even the normally toothless SEC was so disturbed by what it found that it took the unusually bold step of having its top exam official, Andrew Bowden, make a speech in May 2014 in which he described the considerable extent of lawbreaking they’d found so far, including at very large firms.
It was thus surprising to read in January 2015 that Barney Frank was supporting a rollback of SEC oversight. From a Private Fund Management e-mail:
Barney Frank: Reexamine PE registration threshold
The former chairman of the House Financial Services Committee said the $150m threshold for GPs to become SEC registered advisers was worth reexamining and expressed doubts that asset managers will be labelled ‘systematically important’.
This report from PEF Services gave a smidge more detail on what Frank said then:
In response to a question at the PEI CFO/CCO conference, Barney Frank remarked that during the time of the crisis the Congress erred on the side of being too cautious and as a result set the bar too low for requiring private equity firms to register at $150 MM. He said Congress should take a hard look at raising it, allowing the SEC to adjust it, or at a minimum, indexing it. He said that when Congress passed the Dodd-Frank, they knew it was not perfect and expected subsequent legislation to fix it, but the polarized atmosphere of Washington has prevented many of the needed fixes. He elaborated that not only was the PE threshold for registration too low, but so was the $50 billion threshold for when a financial institution becomes systemically important – and this was causing great pain to regional banks.
Yes, that’s Barney Frank as in one of the authors of Dodd-Frank!
Yesterday, Dan Primack of Fortune, the top beat reporter on private equity, said that Frank disavowed what he was widely reported to have said in January. From Primack’s morning e-mail:
Barney backtrack? Back in January, former Congressman Barney Frank appeared at a private equity industry conference, where he was asked for his thoughts on the Dodd-Frank rules that require SEC registration for any private equity firm with $150 million or more in AUM. He said that he disagreed with certain GOP efforts (led by Rep. Robert Hurt) to completely eliminate the registration requirement, but also suggested that the SEC should have the “power to adjust [the threshold] upwards after a certain period of years.”
The statement sent waves throughout the private equity market, and elicited cheers from managers sitting just over that threshold. After all, what Democrats would oppose such a change if Barney Frank supported it?
Well, here’s the thing: Barney Frank may not actually support it. In a recent Harvard University conference on ending institutional corruption (led by Larry Lessig), Frank was asked about his comments and basically plead ignorance. “I don’t fully recall that,” Frank said. “I may have misspoken… We did start out with a somewhat lower level. I may not have understood the question.”
Here’s the clip from the conference in question in early May at Harvard’s Safra Center on Ethics:
You’ll see that Frank is fidgety during the question and denies remembering saying what the media reported he said back then. Yet he appears to have good recall of one portion of his statement, about his reservations about a $50 billion asset size threshold for a banks being deemed systemically important.
If you listen closely, his brushoff about calling for a higher size requirement for private equity fund registration was that he’d been asked about family firms. That seems nonsensical given how few family owned PE money managers there are. And two well-connected Democratic party sources, one of whom has had extensive dealigns with Frank over decades, say that he lies with no inhibition.
Nevertheless, the earlier reports don’t state exactly what question was posed to Frank. So was he asked a question designed to mislead him and he went along to placate his audience? Or is it merely that the private equity industry failed to realize that it would take more than a mere conference appearance for Frank to stay bought? Either way, Barney Frank’s walkback is a step in the right direction, even if a modest one.