The U.S. House of Reps on Friday passed a bill designed to limit executive compensation at large financial institutions, but private equity and venture capital pocketbooks are unlikely to be affected.
Draft legislation would have applied to PE/VC firms (plus hedge), but the final bill included a clause about how affected firms — including “investment advisors” — must have assets of at least $1 billion. Now plenty of firms publicize their billions, but almost all of that cash in tied up in funds. Investment advisors, on the other hand, typically have between a few hundred thousand dollars and a few million dollars.
As Daniel Evans, a partner with Ropes & Gray, explains it: “The funds are investment companies (like mutual funds, but unlike mutual funds they are exempt from registration), and neither mutual funds nor private funds have ever been viewed as investment advisers. The entities that sponsor and manage the funds are the investment advisers.”
This clause could obviously be altered in the Senate version, particularly since I don’t yet know whether its House authors intended to exempt PE/VC firms (or just exempt smaller institutions). We’ll keep an eye on it…