United States Senate
Washington, DC 20510
Dear Senator,
We write on behalf of the over 250 member organizations of Americans for Financial Reform to urge a yes vote on the Reed-Johnson-Brown amendment offered to Restoring American Financial Stability Act of 2010 (S. 3217). As you know, we are a coalition of more than 250 national, state and local groups who have come together to reform the financial industry. Members of our coalition include consumer, civil rights, investor, labor, retiree, community, religious and business groups as well as Nobel Prize-winning economists.
This Amendment will ensure that all advisers to private investment funds with more that $100 million under management are required to register with the Securities and Exchange Commission. Absent this amendment, the bill will include new regulations and registration requirements for hedge funds but exempt private equity and venture capital from these important provisions. Private equity investment strategies, no less than hedge funds, can cause a threat to the U.S. Financial Stability.
Some $1 trillion in LBO (Private equity) loans were issued in 2006 and 20007 alone and more than #1.8 trillion in LBO loans have been issued since 2000. According to Moody’s, about 19.4 percent of companies bought by the 14 largest private equity firms from January 20007 to September 2009 have defaulted and those that have not defaulted face significant refinancing risks in the next few years as more debt comes due. The resulting losses to banks and investors and the job loss for the millions of Americans employed by private-equity owned firms could well exceed those resulting from the subprime mortgage crisis.
The Reed-Johnson-Brown amendment would eliminate the bill’s oversight exemption for private equity and venture capital, ensuring that all large private fund managers have a fiduciary duty to the investors and that Ponzi schemes have no place to hide. It would also provide the SEC and the Financial Stability Oversight Council with the information they need to protect against systemic risks in all private investment funds.
We ask for your support for the amendment and thank you for your consideration of our views.
Sincerely,
Americans for Financial Reform