Obama Plan for Financial Regulatory Reform and Private Investment Funds

Along with the Hedge Fund Adviser Registration Act of 2009, the Hedge Fund Transparency Act of 2009 and the Private Fund Transparency Act of 2009, we also have the Obama plan for financial reform: Financial Regulatory Reform – A New Foundation: Rebuilding Financial Supervision and Regulation.

Under the Obama plan, all advisers to private pools of capital, including hedge funds, private equity funds and venture capital funds, would be required to register with the SEC under the Investment Advisers Act of 1940. There would be an exception for advisers whose assets under management did not exceed “some modest threshold.” All registered private investment funds would be subject to

1. Reporting information on the funds they manage that is sufficient to assess whether any fund poses a threat to financial stability
2. Recordkeeping requirements,
3. Requirements regarding disclosures to investors, creditors and counterparties and
4. Regulatory reporting requirements
5. Regular, periodic examinations by the SEC to monitor compliance with these requirements
6. Confidential reporting on assets under management, borrowings, off-balance sheet exposures, and other information deemed necessary to assess whether a fund or group of related funds is so large, highly leveraged, or interconnected that it poses a threat to financial stability.

As with the Hedge Fund Adviser Registration Act of 2009, the Hedge Fund Transparency Act of 2009 and the Private Fund Transparency Act of 2009, it is too early to tell what will come of this. Although, it seems clear that many private investment funds are going to be subject to greater regulation.

References:

• Financial Regulatory Reform – A New Foundation: Rebuilding Financial Supervision and Regulation hosted on JD Supra
• Goodwin Procter’s summary of the Obama plan (.pdf)
• Financial industry reform proposals would affect private equity funds and venture capital funds by William E. Kelly of Nixon Peabody
• Regulation of Private Fund Advisers Imminent (.pdf) by Paul | Weiss