Financial reforms enacted in the wake of the recession went too far in regulating private equity firms, according to several industry leaders in Tampa Bay.
Most of the principals and partners attending a Tampa Bay Business Journal private equity roundtable on Monday said they supported provisions of new federal legislation that would ease requirements imposed on private equity companies by 2010 Dodd-Frank Wall Street reforms.
The legislation, the Financial CHOICE Act of 2017, lifts a mandate that private equity firms register with and be regulated and examined by the U.S. Securities and Exchange Commission. SEC oversight increases transparency, and expands the amount and quality of information investors can get from private equity managers, a report in Pensions & Investments said.
Investors are capable of looking out for their own interests, said Mark Danzi, principal at Mangrove Equity Partners in Tampa.
“To be an investor in Mangrove and I’m sure the other funds at this table, it means by definition you’ve got the resources to have significant advisors and you’ve probably been an extremely successful businessperson and investor throughout a long career, so why in the world does the SEC need to spend resources to protect that person,” Danzi said.
Danzi previously worked as a securities lawyer and said he has no problems with the parts of Dodd-Frank that regulate massive entities, those whose collapse would impact the entire economic structure of the country. But he said Mangrove, which invests in lower middle-market firms generating between $2 million and $10 million in pre-tax earnings, isn’t one of those entities.
“At Mangrove we spend a lot of money every year on compliance. We’re paying lawyers. We’re paying consultants. We spend hours every year updating our compliance manual, filling out quarterly reports, and the notion that somehow Mangrove is important to the national infrastructure of finance and it’s worthy of all that regulatory attention and expense is to me absurd. It’s a waste of resources,” Danzi said.
Most if not all the private equity firms are subject to “deep and intense” audits, regardless of SEC oversight, said Jay Grayson, managing director and principal at Supply Chain Equity Partners, a Tampa firm that focuses on the distribution industry and related logistics businesses.
Investors in crowdfunding campaigns — a financing method in which money is raised through soliciting relatively small individual investments or contributions from a large number of people — are more likely to need protections than the high net worth individuals who invest with private equity companies, said Santosh Govindaraju, CEO and portfolio manager at Convergent Capital Partners, a real estate private equity company in Tampa.
Dodd-Frank, which came on the heels of the worst recession in 80 years, puts “a hand around small businesses’ throats,” said Will Weatherford, managing partner of Weatherford Partners in Tampa.
He’s also a director and investor in Sunshine Bancorp Inc. (NASDAQ: SBCP) in Plant City. Community banks like Sunshine would be relieved of costly reporting requirements and would be allowed to offer services that were previously unavailable or difficult to implement, such as residential mortgages and small business loans, the National Law Review reported. But repeal of Dodd-Frank opens the doors to abusive consumer lending practices, the Chicago Tribune said.
“When you constrain banks, when you constrain private equity, you are constraining people’s access to capital and that’s always bad,” Weatherford said.
The Financial Choice Act has passed the U.S. House, but Weatherford, a former speaker of the Florida House, questioned whether it would win approval in the Senate.
Margie Manning is Finance Editor of the Tampa Bay Business Journal. She covers the Money beat.