MFA’s Richard Barker On The Private Fund Investment Advisers Registration Act of 2009
Posted By Alex Akesson, July 16th, 2009 : PermalinkRichard H. Baker, President and CEO of the Managed Funds Association (MFA) wrote a letter to MFA members this afternoon, highlighting today’s announcement by the Obama Administration requiring all advisers to hedge funds and other private pools of capital, including private equity and venture capital funds, to register with the Securities and Exchange Commission (SEC).
Baker highlights how the Administration’s proposed legislation would:
* eliminate the private adviser exception in the Investment Advisers Act and require hedge fund managers and other investment advisers to private investment pools with at least $30 million in assets under management to register with the SEC;
* eliminate the exemption from registration in the Advisers Act for certain commodity trading advisors registered with the CFTC if the commodity trading advisor acts as an investment adviser to a private fund (defined as a company that would be an investment company under the Investment Company Act of 1940 but for the exceptions contained in Section 3(c)(1) or Section 3(c)(7));
* give the SEC authority to require investment advisers to maintain records and submit reports of information relating to both the adviser and funds it manages, in order to allow for the supervision of systemic risk by the Board of Governors of the Federal Reserve and the Financial Services Oversight Council, and to provide such information to the Board and Council. The reported information must include at least, for each private fund, the amount of assets under management, use of leverage (including off-balance sheet leverage), counterparty credit risk exposures, trading and investment positions, and trading practices. Each adviser must maintain records of such information and make them available to the SEC upon request, and would be subject at any time to periodic, special, or other examinations by the SEC. Information provided by the SEC to the Board or Council would be kept confidential.
* give the SEC authority to require investment advisers to provide reports, records and other documents of private funds to investors, prospective investors, counterparties, and creditors, for the protection of investors or the assessment of systemic risk.
* permit the SEC to keep confidential any information in reports required to be filed with the SEC, except pursuant to requests from Congress or other federal agencies
* provide the SEC with the authority to define the term ‘client’ differently for different purposes of the Advisers Act and clarify other aspects of the SEC’s rulemaking authority with respect to registered investment advisers.
Click here to read the Administration’s press release announcing the proposed legislation.
Click here to read the text of the proposed legislation.
July 17th, 2009
10:34 am
Of course, one key impact of the Act clarifying that the Commission has the authority to interpret terms of the Act, specifically including the term ‘client,’ would be to effectively overturn the Goldstein ruling that invalidated the 2004 attempt by the Commission to narrow the 203(b)(3) registration exemption. That effort was based on redefining client to look through the fund to the underlying investors, and the Court ruled that the Advisers Act was unclear on the matter and the Commission lacked that power. From my review, the language of this Act and the use of the term ‘clarify’ seem to show an intent to overcome that ruling.
On this basis, if adopted as is the Act would clear the way for the SEC to reintroduce the full-fledged hedge fund registration requirements it first adopted in 2004, including added requirements beyond the record keeping and reporting required by this Act – including the interesting new twist that you point out explicitly permitting the SEC to “prescribe different requirements for different classes of persons and matters.” In effect, this would open things up to a very different scope and structure of regulation if the Commission wanted to go that route – which they seem to have said they do.
I’ve posted an article with more analysis and thoughts on the proposed Act at hedgefundregs.com.
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