Senator Reed introduces bill to regulate hedge funds

Date: Monday, June 22, 2009
Author: Hedgeweek.com

US Senator Jack Reed has introduced the Private Fund Transparency Act of 2009 in an effort to strengthen financial oversight of hedge funds and other private investment funds.

The act aims to protect investors, identify and mitigate systemic risk, and prevent fraud.

The legislation amends the Investment Advisers Act of 1940 to require advisers to hedge funds, private equity funds, venture capital funds, and other private investment pools to register with the Securities and Exchange Commission.

'Hedge funds have played an important role in providing liquidity to our financial system and improving the efficiency of capital markets. But as their role has grown so have the risks they pose. This bill provides the SEC with long-overdue authority to examine and collect data from this key industry. It also authorizes the SEC to share this data with other federal agencies in order to create a system-wide approach to identifying and mitigating risks,' says Reed.

Private funds are not currently subject to the same set of standards and regulations as banks and mutual funds, reflecting the traditional view that their investors are more sophisticated and therefore require less protection. This has enabled private funds to operate largely outside the framework of the financial regulatory system. As a result, Reed says there is no data on the number and nature of these firms or ability to calculate the risks they pose to America's broader economy.

'The financial crisis is a stark reminder that transparency and disclosure are essential in today's marketplace. Improving oversight of hedge funds and other private funds is vital to their sustainability and to our economy's stability. These statutory changes will help modernize our outdated financial regulatory system, protect investors, and prevent fraud,' adds Reed.

Specifically, the Private Fund Transparency Act of 2009 will:

• Require all hedge fund and other investment pool advisers that manage more than USD30m in assets to register as investment advisers with the SEC. The remaining smaller funds will continue to fall under state oversight.
• Provide the SEC with the authority to collect information from the hedge fund industry and other investment pools, including the risks they may pose to the financial system.
• Authorize the SEC to require hedge funds and other investment pools to maintain and share with other federal agencies any information necessary for the calculation of systemic risk.
• Clarify other aspects of SEC's authority in order to strengthen its ability to oversee registered investment advisers.