Draft Speaks of IA Registration for Hedge Fund Managers
As you have probably heard by now, Obama will be presenting his plan for an overhaul of the financial system later today. I have reviewed a copy of Obama’s Financial Regulation Proposal Draft and have reprinted some of the important aspects of the proposal below. In general the most immediate impact for hedge fund managers is that they will be required to register with the SEC as investment advisors. In addition to hedge fund managers, private equity fund managers and VC fund managers will also need to register.
While we understand that these are just proposals, Congress too is excited to get on the registration bandwagon although I think it unlikely for us to see any regulation passed before the end of this year. Even so, hedge fund managers may want to start thinking about how they are going to register as investment advisors and what plans they will need to be putting in place (or plan to put in place in the future).
The plan’s main goals are:
- Promote robust supervision and regulation of financial firms.
- Establish comprehensive supervision and regulation of financial markets.
- Propose comprehensive regulation of all OTC derivatives.
- Protect customers and investors from financial abuse.
- Raise international regulatory standards and improve international cooperation.
Other Points Addressed
Regarding Hedge Funds
All advisers to hedge funds (and other private pools of capital, including private equity funds and venture capital funds) whose assets under management exceed some modest threshold should be required to register with the SEC under the Investment Advisers Act. The advisers should be required to report financial information on the funds they manageme that is sufficient to assess whether any fund poses a threat to fiancnail stability.
Harmonize Futures and Securities Regulation
The CFTC and the SEC should make recommendations to Congress for changes to statutes and regulations that would harmonize regulation of futures and securities.
Strengthen Investor Protection
The SEC should be given new toold to increase fairness for investors by establishing a fiduciary duty for broker-dealers offering investment advice and harmonizing the regulation of investment advisers and broker-dealers.
Expand the Scope of Regulation
We urge national authorities to implement by the end of 2009 the G-20 commitment to require hedge funds or their managers to register and disclose appropriate information necessary to assess the systemic risk they pose individually or collectively.
Specifical goals with regard to Hedge Funds
- Data collection
- SEC should conduct regular, periodic examinations of hedge funds
- Reporting AUM and other fund metrics to the SEC
- SEC would have ability to assess whether the fund or fund family is so large, highly leveraged , or interconnected that it poses a threat to fiancial stability