I had largely ignored the Corporate and Financial Institution Compensation Fairness Act of 2009 (H. R. 3269) thinking it was limited to public companies and banks. I was surprised to find that it also sweeps up investment advisers, and therefore private investment funds, with assets greater than $1 billion.
The bill does focus mostly on public companies and gives shareholders a “say on pay.” But I just noticed that the bill would have an impact on private investment funds.
Section 4, Enhanced Compensation Structure Reporting to Reduce Perverse Incentives, provides
“the appropriate Federal regulators jointly shall prescribe regulations to require each covered financial institution to disclose to the appropriate Federal regulator the structures of all incentive-based compensation arrangements offered by such covered financial institutions …”
The definition of covered financial institution includes: “an investment advisor, as such term is defined in section 202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(11))”. There is a later exemption for covered financial institutions with assets of less than $1,000,000,000.
The bill would empower federal regulators to:
“prescribe regulations that prohibit any incentive-based payment arrangement, or any feature of any such arrangement, that the regulators determine encourages inappropriate risks by covered financial institutions that–
- could threaten the safety and soundness of covered financial institutions; or
- could have serious adverse effects on economic conditions or financial stability.”
It seems like Congress wants to be able to limit the compensation for investment advisers, hedge fund managers, the managers of other private investment funds.
The bill was passed by the House on July 31. The Senate has not yet taken it into consideration.
- Text of Corporate and Financial Institution Compensation Fairness Act of 2009
- Proposed Legislation Affecting Private Funds from Paul Weiss
Image is from Wikimedia Commons: US Capitol Dome Jan 2006.