SEC Offers Relief for Private Equity Holding Companies
The SEC’s Division of Investment Management has provided guidance allowing holding companies to avoid Investment Company Act registration. Under current rule 3a-2, a bona fide holding company could be subject to registration because certain corporate events (e.g. holding cash pending a new deal, acquisition, or tender offer) would exceed permitted passive investment thresholds for more than 12-months. The staff advises that such holding companies could begin the 12-month clock ticking upon the occurrence of the extraordinary event so long as there is a “bona fide intent to be engaged primarily in a non-investment company business, regardless of whether they operate directly or through a holding company structure.” The SEC maintains that this relief furthers its mission of facilitating capital formation.
OUR TAKE: This is good news for private equity firms who could otherwise get caught up in the Investment Company Act’s technicalities. Neither Congress nor the SEC likely intended such firms to register for a temporary period.