Investors in Hedge Fund Won’t Need to Disclose Names and Addresses

As we have discussed in many posts, Senators Grassley and Levin have introduced legislation which would require hedge funds to be regulated under the Investment Company Act.  The legislation would also require hedge fund managers to be registered as investment advisors with the SEC under the Investment Advisors Act.  The name of the act is the Hedge Fund Transparency Act of 2009.

As I pointed out in this post, one of the more controversial parts of the bill was the requirement that the fund disclose the names and current addresses of each investors in the hedge fund.  The specific provision provides:

“The information form required…shall be filed at such time and in such manner as the Commission shall require, and shall…include… the name and current address of…each natural person who is a beneficial owner of the investment company.”  The information shall “be made available by the Commission to the public at no cost and in an electronic, searchable format.”  (See new Section 6(g)(2) of the Investment Company Act as described in Section 2(b) of the bill)

However, the plain words of the statue, apparently, aren’t what they mean.  Senator Grassley has recently stated that the disclosure of names and addresses only applies to the hedge fund managers.  The Wall Street Journal recently ran this piece which states:

“The bill requires disclosure of a hedge fund’s beneficial owners, who profit from the fees generated in operating the fund,” and not the names of outside clients, the senators said in a joint statement Thursday.

We disagree with this statement and we humbly recommend that the bill be amended if there was an intent which is different from the plain language meaning of the bill.  Additionally, there are other parts of the bill which deserve clarification if any re-writes occur.  Specifically we believe that new Section 6(g)(1), as described in Section 2(b) of the bill, would require the hedge fund itself to register as an investment advisor with the SEC.  We believe the intent is for the hedge fund management company, instead, to register with the SEC and accordingly Section 2(b) of the bill should be rewritten.

As an open note to Senators Grassley and Levin, we would be happy to provide input on future revisions of this bill.