Shearman & Sterling put together a great client publication on private fund manager registration requirements being considered by Congress: Private Fund Manager Registration as U.S. Financial Reform Legislation Approaches the Finish Line. Among the many provisions to be reconciled in the 1,600+ pages of each bill are those that would require private fund managers to … Read more »
Category: Private Investment Funds
Dodd Bill, Private Placements and Accredited Investors
I previously wrote about how the Restoring American Financial Stability Act being tossed around in the Senate could affect private investment funds by changing the definition of accredited investor and altering the process for a Regulation D private placement. It looks like much of that is going to be wiped out of the bill. Senate … Read more »
Private Investment Funds and Form 5500 Schedule C
If you have ERISA plan investors in your private investment fund you should know that they have new reporting requirements this year. There is a new rule that requires greatly expanded disclosure of monetary and non-monetary compensation paid by the ERISA plan. On Schedule C to Form 5500, the plan will need to identify any … Read more »
SEC Censure for Failing to Conduct Due Diligence
The SEC censured and fined an investment adviser for due diligence lapses. Yosemite Capital Management, LLC and its managing director, Paul H. Heckler, got a wrist slap for failing to disclose to clients that they had encountered substantial problems when attempting to perform the due diligence. The big problem is that Yosemite had made a … Read more »
SEC is Probing Hedge Funds
They’re looking at you. Rob Kaplan and Bruce Karpati, co-chiefs of the Asset Management Unit of the SEC enforcement division, held their first full staff meeting last week. This new unit will be focusing on misbehavior by private-equity funds, hedge funds, buyout firms, mutual funds and other asset managers. The unit is one of the … Read more »
The Knowledgeable Employee Exemption for Private Funds
UPDATE: See More Guidance on Knowledgeable Employee Exemption for Private Funds When operating under the Section 3(c)(7) exemption from the Investment Company Act, the issue then becomes how a private investment fund can provide an equity ownership to key employees. Its unlikely that your key employees will have the $5 million in investments needed to … Read more »
Qualified Purchasers under the Investment Company Act
In a private fund exempt under 3(c)(1) investors only generally need to be accredited investors (and “qualified clients” if the fund manager is SEC registered. If you have more than 100 investors in the fund you will need to fall under the 3(c)(7) exemption. That means all of your investors must be “qualified purchasers.” A … Read more »
Private Fund Exemptions under the Investment Company Act
Private investment funds primarily use two exemptions to avoid being defined as an “investment company” under the Investment Company Act of 1940: Section 3(c)(1) or Section 3(c)(7). Less than 100 Investors Section 3(c)(1) of the Investment Company Act excludes from being an investment company any issuer whose outstanding securities are beneficially owned by not more … Read more »
Are Private Equity-Backed Companies More Likely to Default?
During the Great Panic, there was some grumbling that private equity-backed companies were posing a great risk to the economy. The Private Equity Council has done some research and came to the conclusion that the opposite is true. They are less likely to default. Of course, there are lots of caveats and distinctions in the … Read more »
Accredited Investors under the Restoring American Financial Stability Act
One of the surprises in the Restoring American Financial Stability Act of 2010 is that it proposes to raise the standard for being an accredited investor. Section 412 of the bill would require the SEC to increase the dollar thresholds to be qualified as an accredited investor. Section 413 would require the GAO to study … Read more »