Tag: Hedge Fund Transparency Act

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.

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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.

Books and Records Requirement for Investment Advisers

The proposed Hedge Fund Transparency Act would require private investment funds to maintain books and records that the SEC requires. Presumably, if the Act passes the SEC would promulgate some regulations addressing what it would require.

One place to look would be Rule 204-2 under the Investment Advisers Act. The other place would be Rule 31a-1 under the Investment Company Act.

Hedge Fund Transparency Act of 2009

Senators Chuck Grassley and Carl Levin introduced the Hedge Fund Transparency Act (S.344). Instead of amending the Investment Advisers Act of 1940 (as Senator Grassley tried with S.1402 in the 110th Congress), this bill would amend the Investment Company Act of 1940.

The first step is defining a “hedge fund.” (Not an easy task)

Rather than trying to define a hedge fund, the proposed law instead applies to any investment company that has at least $50 million in assets or assets under management and relies on Sections 3(c)(1) or (7) as an exemption from the requirements under the Investment Company Act.

The proposed law will not require full compliance with Investment Company Act, but instead submit to a limited regulatory regime:

  1. Register with the SEC.
  2. Maintain books and records that the SEC may require.
  3. Cooperate with any request by the SEC for information or examination.
  4. File an information form with the SEC electronically, at least once a year. This form must be made freely available to the public in an electronic, searchable format. The form must include:
    • The name and current address of each individual who is a beneficial owner of the investment company.
    • The name and current address of any company with an ownership interest in the investment company.
    • The primary accountant and primary broker used by the investment company
    • An explanation of the structure of ownership interests in the investment company.
    • Information on any affiliation with another financial institution.
    • The name and current address of the investment company’s primary accountant and primary broker.
    • A statement of any minimum investment commitment required of a limited partner, member, or investor.
    • The total number of any limited partners, members, or other investors.
    • The current value of the assets of the company and the assets under management by the company.
  5. Establish an anti-money laundering program and report suspicious transactions

This bill is far from becoming law. BUT, there is a groundswell of support in Washington to increase the regulation of private investment funds. We will keep an eye on this legislation.

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