(a) What is a private
equity fund? For purposes of this subpart, a “private equity
fund” is any company that—
(1) is formed for the purpose of and is engaged exclusively in the
business of investing in shares, assets, and ownership interests of
financial and nonfinancial companies for resale or other disposition;
(2) is not an operating company;
(3) no more than 25 percent of the
total equity of which is held, owned or controlled, directly or indirectly,
by the financial holding company and its directors, officers, employees,
and principal shareholders;
(4)
has a maximum term of not more than 15 years; and
(5) is not formed or operated for the purpose
of making investments inconsistent with the authority granted under
section 4(k)(4)(H) of the Bank Holding Company Act (12 U.S.C. 1843(k)(4)(H))
or evading the limitations governing merchant banking investments
contained in this subpart.
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(b) What form may a private equity fund take? A private equity fund
may be a corporation, partnership, limited liability company, or other
type of company that issues ownership interests in any form.
(c) What is the holding period permitted
for interests in private equity funds?
(1) In general. A financial holding company may own, control, or hold any interest
in a private equity fund under this subpart and any interest in a
portfolio company that is owned or controlled by a private equity
fund in which the financial holding company owns or controls any interest
under this subpart for the duration of the fund, up to a maximum of
15 years.
(2) Request to hold interest for longer period. A financial holding company may seek Board approval to own, control,
or hold an interest in or held through a private equity fund for a
period longer than the duration of the fund in accordance with section
225.172(b) of this subpart.
(3) Application of rules. The rules described
in section 225.172(b)(2) and (3) governing holding periods of interests
acquired, transferred or previously held by a financial holding company
apply to interests in, held through, or acquired from a private equity
fund.
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(d) How do the restrictions
on routine management and operation apply to private equity funds
and investments held through a private equity fund?
(1) Portfolio
companies held through a private equity fund. A financial holding
company may not routinely manage or operate a portfolio company that
is owned or controlled by a private equity fund in which the financial
holding company owns or controls any interest under this subpart,
except as permitted under section 225.171(e).
(2) Private equity
funds controlled by a financial holding company. A private equity
fund that is controlled by a financial holding company may not routinely
manage or operate a portfolio company, except as permitted under section
225.171(e).
(3) Private equity funds that are not controlled
by a financial holding company. A private equity fund may routinely
manage or operate a portfolio company so long as no financial holding
company controls the private equity fund or as permitted under section
225.171(e).
(4) When does a financial holding company control
a private equity fund? A financial holding company controls a
private equity fund for purposes of this subpart if the financial
holding company, including any director, officer, employee, or principal
shareholder of the financial holding company—
(i) serves as a general partner, managing
member, or trustee of the private equity fund (or serves in a similar
role with respect to the private equity fund);
(ii) owns or controls 25 percent or
more of
any class of voting shares or similar interests in the private equity
fund;
(iii) in
any manner selects, controls, or constitutes a majority of the directors,
trustees, or management of the private equity fund; or
(iv) owns or controls more than 5 percent
of any class of voting shares or similar interests in the private
equity fund and is the investment adviser to the fund.
