Levin and Grassley Introduce Bill that would Require Hedge and Other Private Funds to Register to Avoid Regulation as Investment Companies

On January 29, 2009, Senators Carl Levin (D-Michigan) and Charles Grassley (R-Iowa) introduced a bill that would, if enacted, require certain hedge and other private funds to register with the SEC, file an annual disclosure document, maintain books and records in accordance with SEC rules and co-operate with SEC information or examination requests.  The Hedge Fund Transparency Act (HFTA), as the bill is titled, would apply to funds currently excluded from the definition of “investment company” under Sections 3(c)(1) or 3(c)(7) of the Investment Company Act of 1940, and that have at least $50 million in assets under management.  That is, it would apply to many hedge funds, and also to many private equity, venture capital and other private funds (and thus the words “hedge fund” in the title of the act suggest that the bill is more limited than it in fact is).  In exchange for registering and performing the other required actions, covered funds would remain exempt from regulation as investment companies.  In addition, the HFTA would require hedge funds to establish anti-money laundering programs and report suspicious transactions.  We provide a comprehensive overview of the mechanics of the bill, discuss whether it includes or presages a hedge fund adviser registration requirement and report on responses to the bill from hedge fund industry participants and Washington insiders.

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