Article by John A. Brunjes , Cheri L. Hoff and Genna N. Garver
On the heels of the U.S. House of Representatives Committee on Financial Services approval of the Private Fund Investment Advisers Registration Act of 2009 (H.R. 3818) (the "House Bill"), Senator Dodd has introduced in the U.S. Senate his own Private Fund Investment Advisers Registration Act of 2009 ("Senator Dodd's Bill"). The material provisions of Senator Dodd's Bill are discussed below.
Private Fund Adviser Registration and Reporting Requirements Similar to the House Bill, Senator Dodd's Bill, if enacted as proposed, would eliminate the "private adviser exemption" from SEC registration under the Investment Advisers Act of 1940, as amended ("Advisers Act"). The "private adviser exemption" currently exempts from registration advisers who during the course of the preceding 12 months have had fewer than 15 clients. Most private fund advisers rely on the "private adviser exemption" with each fund counting as one client. As would the House Bill, Senator Dodd's Bill would also authorize the SEC to require advisers to "private funds" to maintain records and submit reports with respect to the funds they manage. Although the House Bill would define the term "private funds" to include both domestic and offshore funds relying on section 3(c)(1) or section 3(c)(7) of the Investment Company Act, Senator Dodd's Bill would define the term to include only domestic funds and offshore funds with 10% or more of their securities owned by U.S. persons relying on section 3(c)(1) or section 3(c)(7) of the Investment Company Act. The private fund records and reports would require the following information:
assets under management ("AUM"); use of leverage; counterparty credit risk exposures; and trading positions and practices. Unlike the House Bill, Senator Dodd's Bill would require the following additional information in the private fund records and reports:
valuation methodologies; investment positions; types of assets held; side arrangements or letters, whereby certain investors in a fund obtain more favorable rights or entitlements than other investors; and such additional information as the SEC, in consultation with the Agency for Financial Stability (the systemic risk regulator that would be created under Dodd's proposed Financial Stability Act of 2009), deems necessary and appropriate in the public interest and for the protection of investors, or for the assessment of systemic...