Hedge Fund Transparency Act of 2009

Senators Chuck Grassley and Carl Levin introduced the Hedge Fund Transparency Act (S.344). Instead of amending the Investment Advisers Act of 1940 (as Senator Grassley tried with S.1402 in the 110th Congress), this bill would amend the Investment Company Act of 1940.

The first step is defining a “hedge fund.” (Not an easy task)

Rather than trying to define a hedge fund, the proposed law instead applies to any investment company that has at least $50 million in assets or assets under management and relies on Sections 3(c)(1) or (7) as an exemption from the requirements under the Investment Company Act.

The proposed law will not require full compliance with Investment Company Act, but instead submit to a limited regulatory regime:

  1. Register with the SEC.
  2. Maintain books and records that the SEC may require.
  3. Cooperate with any request by the SEC for information or examination.
  4. File an information form with the SEC electronically, at least once a year. This form must be made freely available to the public in an electronic, searchable format. The form must include:
    • The name and current address of each individual who is a beneficial owner of the investment company.
    • The name and current address of any company with an ownership interest in the investment company.
    • The primary accountant and primary broker used by the investment company
    • An explanation of the structure of ownership interests in the investment company.
    • Information on any affiliation with another financial institution.
    • The name and current address of the investment company’s primary accountant and primary broker.
    • A statement of any minimum investment commitment required of a limited partner, member, or investor.
    • The total number of any limited partners, members, or other investors.
    • The current value of the assets of the company and the assets under management by the company.
  5. Establish an anti-money laundering program and report suspicious transactions

This bill is far from becoming law. BUT, there is a groundswell of support in Washington to increase the regulation of private investment funds. We will keep an eye on this legislation.

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