Update from CEO Steve Judge
Washington was relatively quiet during the third quarter. With the summer congressional recess, the upcoming mid-term elections, and an onset of foreign policy crises, the attention of Congress was largely diverted from the domestic agenda.
The PEGCC’s ability to positively influence the regulatory and legislative environments that impact our industry comes from proactive communications and advocacy, along with a commitment to top-quality research. This proactive approach was evident this quarter. The Council successfully worked for the introduction of House Resolution 702 by Rep. Michael Conaway (R-TX-11) with 34 original cosponsors. This resolution supports the economic benefits of private equity and growth capital firms and the continued treatment of carried interest as a capital gain. It also gives Members of Congress a way to endorse a proposal that is important to our industry. Along with this achievement, the PEGCC maintained a field campaign that identifies public supporters of our position on carried interest.
In a broader advocacy effort, the PEGCC brought four portfolio company CEOs from member firm The Riverside Company to Capitol Hill, where the Council’s senior staff facilitated ten meetings with Members of Congress. The CEOs were able to provide the Members with their success stories and relay the economic benefits of the private equity industry.
While there was a limited presence by lawmakers in Washington during the summer months, the PEGCC used this time as an opportunity to continue its research output, build its member services, and strengthen its advocacy base. These sustained efforts are an essential part of how the PEGCC continues to advance the private equity industry.
HIGHLIGHTS
Highlights of the Council’s work this quarter are:
- The PEGCC welcomed one new member: Adams Street Partners (Fund of Funds Member)
- The PEGCC Public Affairs team brought on two new hires: Heath Hall joined as Director of Grassroots and Public Affairs and James Maloney joined as Director of Communications.
- Construction is underway at the PEGCC’s new office space.
- The PEGCC held its first annual CFOs’ Day.
- The PEGCC worked to add 34 original cosponsors to the introduction of H.Res. 702 by Rep. Mike Conaway (R-TX).
- The PEGCC met with Andrew Bowden, the Director of the SEC’s Office of Compliance, Inspections and Examinations (OCIE) and with senior staff from the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board (FRB) on Leveraged Lending Guidance.
- The PEGCC submitted a supplemental comment letter to the CFTC on Proposed Aggregation Relief and participated in the CFTC’s public forum on the Aggregation.
- The PEGCC submitted two comment letters to the German Ministry of Finance to forestall negative changes to the German Investment Regulation and German Pension Fund Capital Investment Regulation.
- The PEGCC commissioned a study with The Institute for Exceptional Growth Companies (IEGC) at the University of Wisconsin to analyze the relative growth of jobs and revenues generated by private equity-backed companies.
REGULATORY, LEGISLATIVE, ADVOCACY, AND RESEARCH WORK
The Council remained engaged with regulatory, legislative, advocacy, and research work throughout the quarter, leading to advancements and results on key issues.
As a continuation of the PEGCC’s response to the recent speech by Andrew Bowden, the Director of the SEC’s Office of Compliance, Inspections and Examinations (OCIE), which placed private equity in a negative light, the PEGCC conducted a meeting with Mr. Bowden. The meeting achieved the Council’s goal of presenting a positive case for private equity in general terms. The PEGCC also held a meeting with senior staff from the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board (FRB) on Leveraged Lending Guidance. The Council plans to continue to engage these offices as appropriate.
Maintaining our efforts from the second quarter, the Council pursued a potential no-action letter relief from the SEC that would enable private equity investment advisers to avoid registration as broker-dealers even if they receive transaction fees under certain circumstances.
The Council submitted a supplemental comment letter to the CFTC on Proposed Aggregation Relief, participated in the CFTC’s public forum on the Aggregation, and held meetings with CFTC Chairman, Commissioners and staff on September 22, 2014. The PEGCC also submitted two additional comment letters to the German Ministry of Finance to forestall negative changes to the German Investment Regulation and German Pension Fund Capital Investment Regulation.
The PEGCC has continued its grassroots effort of identifying Members of Congress who support our position on carried interest. We have received positive responses from a number of Members who share our view on this topic.
In keeping with the Council’s commitment to advance the private equity industry through original research, the PEGCC released two reports this quarter: the “Private Equity Performance Update” for the fourth quarter of 2013 and the “Private Equity Trends Report” for the second quarter of 2014.
The Performance Update showed that as of December 31, 2013, private equity returns represented an outperformance of the S&P 500 by -11.5 percentage points, -1.1 percentage points, -2.0 percentage points, and 6.5 percentage points for the one-year, three-year, five-year, and ten-year periods, respectively. The Trends Report revealed that while private equity activity experienced declines from the first quarter of 2014, fundraising nearly doubled to $50 billion.
Our Research team has also commissioned a study with The Institute for Exceptional Growth Companies (IEGC) at the University of Wisconsin to analyze the relative growth of jobs and revenues generated by private equity-backed companies at the congressional district level.
THOUGHT LEADERSHIP
Along with the strong output of our research team, our senior staff continues to position themselves as thought leaders within the private equity field. During this quarter, members of our staff participated in the following events:
- Bronwyn Bailey attended a PECFOA event with guest Rep. Sean Patrick Maloney in New York City.
- Langston Emerson and Bronwyn Bailey attended the White House Rural Opportunity Investment Conference in Washington.
- Jason Mulvihill chaired the PEGCC Chief Compliance Officers’ Working Group Meeting in New York. The topic of the meeting was “Recent Developments with the SEC’s Office of Compliance, Inspections, and Examinations.”
- Steve Judge and Bronwyn Bailey moderated the panels at PEGCC’s Inaugural CFO Day.
MEMBERSHIP RECRUITMENT AND SERVICES
The PEGCC team has continued to build our fund of funds (FOFs) member offering. Adams Street Partners signed on as a FOFs member this quarter, joining Pantheon Ventures in this newly-founded member class.
The Council held a number of important events this quarter, including:
- Research-Investor Relations’ Committee Luncheon
- Chief Compliance Officers’ Working Group Meeting
- Membership Committee Call
- Chief Financial Officers’ Annual Meeting
- Chief Compliance Officers’ Working Group Meeting
Of particular note is our CFOs’ Day. This was an inaugural event of the Council which included CFOs from more than 15 private equity member firms. The event was held at Associate Member Deloitte’s New York office, and included expert panelists from Associate Member firms Deloitte, KPMG, Ernst & Young, Cleary Gottlieb Steen & Hamilton, and Debevoise & Plimpton. The panelists discussed a wide range of topics regarding the role of CFOs in the private equity industry, as well as issues such as cyber-security, regulation, and taxation.
LOOKING AHEAD
This quarter the Council grew the scope of member services and continued to build our profile as thought leaders within the private equity industry. We successfully advanced our advocacy efforts and conducted substantial meetings during a time of minimal movement on Capitol Hill. As the mid-term elections play out during the fourth quarter, we will continue to work with Washington’s legislative and regulatory environments to ensure the voice of the private equity industry is heard.
