Sunday, July 31, 2011

Regulatory Costs: Good for Mr Soros, What About Us?

From WJS: (HT D. Haarmeyer)

Regarding your editorial "Soros's Regulatory Hedge" (July 27): I wish my partners and I could give back a mere 4% of capital under management as George Soros is doing and be free of the new SEC requirement to register as an investment adviser. Instead, our small firm will be forced to create a compliance department and incur substantial costs to track and report various aspects of our business because the Dodd-Frank Act defines us as a systemic risk to financial markets.

We must make 44-page quarterly filings, and even longer annual filings require vast disclosure on personnel, partnership agreements and underlying investments—companies that have nothing in common except that we are a shareholder. Like most private equity firms, we use no leverage at the fund level. Our contract with investors limits us to a tightly defined list of permitted investments. Each of the companies we invest in produces audited financial statements. These audits are the basis for our own audits, which are provided to investors and used in fundraising activities already highly regulated by the SEC.

Contrast this to Mr. Soros's "family office," which will be free to invest billions of dollars in anything, anywhere, anytime with or without leverage and with little or no disclosure to anyone. The family-office exemption exists because Congress determined that requiring these private capital pools to register would not reduce systemic risk, though they may manage many times the capital our firm does. There is absolutely no credible reason to treat private firms managing third-party capital for sophisticated investors differently than family offices—except to create sound bites and score political points.

Brian P. Simmons

Chicago

Brent

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