On July 15, 2009, the Obama Administration introduced a new bill proposing to regulate a range of private pools of equity capital, including private investment funds and their sponsors. This bill, proposed as the "Private Fund Investment Advisers Registration Act of 2009", follows three similar bills that have been released over the past several months as well as President Obama’s financial industry regulatory proposals which were announced on June 17, 2009. While this proposal 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.
As proposed, the Private Fund Investment Advisers Registration Act of 2009 would:
require all investment advisers of "private funds" (defined to include most private pools of equity capital) that manage more than $30 million in assets to register as investment advisers;
require that investment advisers of private funds maintain records and submit reports to the Securities and Exchange Commission (the "SEC") regarding the private funds that they advise;
authorize the SEC to require that information provided by investment advisers necessary for the calculation of systemic risk be maintained and shared with other federal agencies; and
clarify other aspects of the SEC's authority in order to strengthen its ability to oversee registered investment advisers.
The records and reports that would need to be maintained and filed for each private fund would include: (i) the amount of assets under management, (ii) the private fund’s use of leverage (including off-balance sheet leverage), (iii) counter-party credit risk exposures, (iv) trading and investment positions and (v) other information the SEC determines necessary or appropriate for the protection of investors or for the assessment of systemic risk.
An investment adviser to a private fund, such as a fund management company, would also be required to provide the reports, records and other documents to investors, prospective investors, counter-parties and creditors of a private fund that the SEC deems necessary or appropriate for the protection of investors or for the assessment of systemic risk. The specific reports probably would be delineated in SEC regulations issued if and when the bill was approved.
Depending on the level of systemic risk attributable to the private fund, the fund may be subject to further regulations as determined by the Board of Governors of the Federal Reserve System and the Financial Services Oversight Council.
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 Investment Advisers Registration Act of 2009 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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