On June 16, 2009, U.S. Senator Jack Reed (D-RI) introduced a new bill proposing to regulate a range of private pools of equity capital. This bill, proposed as the "Private Fund Transparency Act of 2009", follows two similar bills and new Securities and Exchange Commission ("SEC") regulatory proposals that have been released over the past several months. In addition, President Obama announced his financial industry regulatory proposals on June 17, 2009. While these particular proposals may change, it is likely that some form of legislation will be enacted and regulations will be implemented that will significantly increase regulatory oversight and obligations of private investment funds, their sponsors and management companies.
The press release issued for the Private Fund Transparency Act of 2009 provides that the bill would:
- require all hedge fund and other investment pool advisers that manage more than $30 million in assets to register as investment advisers with the SEC, with remaining smaller funds continuing to fall under state oversight;
- provide the SEC with the authority to collect information from the hedge fund industry and other investment pools, including the risks they may pose to the financial system;
- authorize the SEC to require hedge funds and other investment pools to maintain and share with other federal agencies any information necessary for the calculation of systemic risk; and
- clarify other aspects of SEC's authority in order to strengthen its ability to oversee registered investment advisers.
While the Private Fund Transparency Act of 2009 is in its early stages, it is likely that a form of it, either individually or in combination with language proposed in the two earlier legislative proposals—the Hedge Fund Transparency Act and the Hedge Fund Adviser Registration Act of 2009—will be part of President Obama's recently released regulatory plan for private pools of capital. President Obama's plan conceptually provides that (i) all advisers to private pools of capital, whose assets under management exceed some modest threshold, should be required to register with the SEC under the Investment Advisers Act of 1940, and (ii) advisers of private pools of capital should be required to report financial information on the funds they manage to the extent necessary to assess whether any individual fund poses a threat to the overall financial stability of the economy.
As it becomes apparent that some form of final legislation on this issue will be passed by Congress, private fund sponsors and their trade associations have begun to embrace some form of regulation and are offering their input into the form and substance of such regulation.
In addition to proposals at the federal level, many states also are proposing legislation, and state attorneys general are conducting investigations, that will impact private investment funds. In particular, many states are significantly increasing their scrutiny of how fund sponsors use placement agents to raise capital from state pension authorities and are cracking down on the use of unregistered brokers in raising capital.
We will continue to monitor the legislative and regulatory proposals to further regulate private funds and communicate pertinent information to you. If you have any questions related to the Private Fund Transparency Act of 2009, the Obama Administration proposals or other regulatory proposals and their impact, please feel free to contact:
This Client Alert is prepared for the general information of our clients and other interested persons. This Client Alert is not, and is not intended to be, comprehensive in nature. Due to the general nature of its content, this Client Alert is not and should not be regarded as legal advice.
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