Wednesday, April 1, 2009

Hedge Fund Adviser Registration Act

Recently, Representatives Michael Capuano (D-MA) and Michael Castle (R-DE) introduced the Hedge Fund Adviser Registration Act of 2009. The bill would to eliminate Section 203(b)(3) of the Investment Advisers Act of 1940, which exempts from SEC registration advisers who have a limited number of clients, and who do not hold themselves out to the public as investment advisers. This bill is a companion to the Hedge Fund Transparency Act introduced in the Senate by Senators Carl Levin (D-MI) and Chuck Grassley (R-IA). You may recall that Forum News Feed posted a summary of the Senate bill last month, available at "Legislative Spotlight Falls on Hedge Funds."

This second bill would require that all investment advisers with even a single U.S. client, including advisers of hedge funds, venture capital funds, private equity funds, and CDOs register with the SEC. This registration regime commits advisers to the gamut of restrictions and duties to which advisers of regulated pooled investment vehicles are currently subject. These include:

  • Filing form ADV;

  • Maintaining assets with a "qualified custodian;"

  • Extensive recordkeeping requirements;

  • Maintenance of a written code of ethics and compliance program;

  • SEC inspections; and

  • Certain restrictions on advisory contracts under the Investment Advisers Act regarding assignment, fees and carried interests.
As both hedge fund bills work their way through the House and the Senate, it is certain that hedge fund advisers and other advisers currently exempt from SEC registration will exert as much pressure as they can to avoid the regulatory costs and restrictions considered by the bills.

The latest text of the Hedge Fund Adviser Registration Act of 2009 is available at:

A discussion of and links to the Senate's Hedge Fund Transparency Act of 2009 are available at: