Tag: Hedge Fund Adviser Registration Act of 2009

Obama Plan for Financial Regulatory Reform and Private Investment Funds

obama plan

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:

More on the Private Fund Transparency Act of 2009

The full text of the Private Fund Transparency Act of 2009 has now been published (S. 1276). The press release from Senator Reed was nice, but I prefer to see the ink on the paper. So here is what I see n the Act:

Registration

The Act deletes the exemption from registration in Section 203 (b)(3) of the Investment Advisers Act and replaces it with an exemption for foreign investment advisers.  The (b)(3) exemption was for investment advisers with fewer than 15 clients and did hold themselves out as investment advisers. This was the exemption most often used by private investment funds.

Reporting:

“The Commission is authorized to require any investment adviser registered under this title to maintain such records and submit such reports as are necessary or appropriate in the public interest for the supervision of systemic risk by any Federal department or agency, and to provide or make available to such department or agency those reports or records or the information contained therein.”

This is a broad empowerment of the SEC to demand any report that they feel may be a systemic risk. The act fails to define “systemic risk.”

Identity of Clients

The Act would strike subsection (c) of Section 210 of the Investment Advisers Act.  That subsection prohibits the SEC from requiring the disclosure of an investment advisers clients (except in a SEC proceeding or enforcement action). So Senator Reed wants investment advisers to disclose their client lists and private investment funds to disclose their investors.

Defining Clients

The Act would all the SEC to “ascribe different meanings to terms (including the term ‘client’) used in different sections” of the Investment Advisers Act. I am not sure what this change would do. I suspect it is an attempt to address the demise of the Hedge Fund Rule and allow the SEC to define the investors in private investment funds as “clients” of the fund manager. The courts had ruled that the SEC overstepped their authority when they tried this definition on their own.

Final Thoughts

This Act seems much more intrusive to private investment funds than the Hedge Fund Adviser Registration Act of 2009 or the Hedge Fund Transparency Act of 2009.

At this point, it is not clear which of these competing acts will end up becoming law, if any.

References:

Perspectives on Hedge Fund Registration

paul-kanjorski

On Thursday, May 7, 2009,  the House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises held a hearing on: “Perspectives on Hedge Fund Registration”.

During the hearings on legislation to regulate hedge fund advisers, Rep. Paul Kanjorski said that hedge funds deserve to “continue swimming in the deep end of the pool.” But if hedge funds want to “continue to swim” in the US capital markets, they must, “fill out the forms and get an annual pool pass.”

Rep.  Kanjorski also stated that “Congressmen Capuano and Castle have drafted a good bill to accomplish the goal of registering hedge fund investment advisers.” That sounds like an endorsement of the Hedge Fund Adviser Registration Act.

Webcast:

Opening  Statement:

Witness List & Prepared Testimony:

  • Mr. Todd Groome, Chairman, Alternative Investment Management Association
  • The Honorable Richard H. Baker, President, Managed Funds Association
  • Mr. James S. Chanos, Chairman, Coalition of Private Investment Companies
  • Ms. Orice Williams, Director, Financial Markets and Community Investment Team, Government Accountability Office
  • Mr. Britt Harris, Chief Investment Officer, Teacher Retirement System of Texas

Perspectives on Hedge Fund Registration

house-commitee-on-financial-services

On Thursday, May 7, 2009, 11:00 a.m., the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises will hold a hearing on: “Perspectives on Hedge Fund Registration”

The Committee will be offering a live webcast of the hearing.

Hedge Fund Adviser Registration Act of 2009

capuanoCongressmen Mike Capuano of Massachusetts and Mike Castle of Delaware introduced the Hedge Fund Adviser Registration Act of 2009 (H.R. 711). The Act, if passed, would delete Section 203(b)(3) from the Investment Advisers Act of 1940.

This section of the Investment Advisers Act exempts from registration an investment adviser who has fewer than 15 clients and does not hold themselves out to the public as an investment adviser. The general partner of a private investment fund is generally considered an investment adviser to that fund. Many private investment funds use this exemption if they have less than 15 funds.

Since the bill was just proposed on January 27, 2009 it is too early to speculate as to whether it will be passed.

This act falls into the bucket with the Hedge Fund Transparency Act of 2009 as one of several prospective changes to the private investment fund industry.