Friday, July 17, 2009

Obama Administration Proposes Fund Adviser Legislation

On July 15, 2009, the U.S. Department of the Treasury introduced the Private Fund Investment Advisers Registration Act of 2009 (the "Act"), which broadens the scope of the Private Fund Transparency Act of 2009 introduced by Senator Jack Reed (D-RI) earlier this year. The aim of this new legislation is to "help protect investors from fraud and abuse, provide increased transparency, and provide the information necessary to assess whether risks in the aggregate or risks in any particular fund pose a threat to [the United States'] overall financial stability." In addition to the concept of a "foreign private adviser" that was previously introduced in Sen. Reed's legislation, the Act also introduces the concept of a "private fund", which is any investment fund that would be an investment company but for section 3(c)(1) or section 3(c)(7) of the Investment Company Act of 1940 and either (i) is organized or otherwise created under the laws of the United States, or (ii) has 10% or more of its outstanding securities owned by U.S. persons. The Act, among other things, proposes to limit the private adviser exemption of the Investment Advisers Act of 1940 (the "Advisers Act") to foreign private advisers, limit the intrastate exemption to only those investment advisers who are not acting as investment advisers to any private funds, and require the registration of any investment adviser that is registered with the Commodity Futures Trading Commission and acts as an investment adviser to a private fund. Further, the Act would subject a registered investment adviser to additional record-keeping and reporting requirements. For each private fund advised by the investment adviser, the adviser would be required to file reports with the Securities and Exchange Commission disclosing, among other things: (i) the amount of assets under management; (ii) use of leverage (including off-balance sheet leverage); (iii) counterparty credit risk exposure; (iv) trading and investment positions; and (v) trading practices. The Act also proposes to remove a provision that otherwise precluded the Advisers Act from requiring, or authorizing the SEC to require, any investment adviser engaged in rendering investment supervisory services to disclose the identity, investments, or affairs of any client of such investment adviser.

Press Release
Full Text of the Act