Senior Senators Propose Legislation Requiring Hedge Fund Registration
Senators Grassley and Levin introduced the “Hedge Fund Transparency Act” which would require registration of all funds currently relying on 3(c)(1) (private funds with fewer than 100 holders) or 3(c)(7) (qualified purchaser funds) to the extent that a fund has more than $50 Million in assets. Registration would include an annual, publicly available filing that would include a list of all investors and other information including the fund’s accountant, prime broker, total assets, and affiliations. The bill moves 3(c)(1) and 3(c)(7) to Section 6 of the Investment Company Act, thereby making such funds exempt from certain requirement of the Investment Company Act rather than excluded completely. The proposed legislation would specifically make these funds subject to SEC regulation including examinations. The bill would apply to any find relying on the exemptions including private equity funds.
OUR TAKE: If this legislation is passed, the SEC will have to parse through the Investment Company Act to determine the effect of creating this new class of exempt fund. For example, classifying private funds as investment companies would have a significant affect on fund-of-funds that may avoid the strictures of Section 12 because their underlying investments would now be considered “investment companies.”