Both the Managed Funds Association ("MFA") and the Alternative Investment Management Association ("AIMA") announced their support for mandatory registration of hedge fund advisers in statements to a US congressional committee on May 7.
MFA President Richard H. Baker and AIMA Chairman W. Todd Groome testified at a hearing sponsored by the US House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises that they believe the approach taken by H.R. 711, the Hedge Fund Adviser Registration Act of 2009, is the proper approach to hedge fund registration.
Witnesses called to testify at the hearing were asked to specifically address their views on H.R. 711, a bill sponsored by Reps. Michael Castle (R-Del.) and Michael Capuano (D-Mass.). H.R. 711 would amend the Investment Advisers Act of 1940 to repeal the exception to the registration requirement for any investment adviser who: (1) during the preceding twelve months has had fewer than 15 clients; and (2) neither holds himself or herself out to the public as an investment adviser, nor acts as an investment adviser to any registered investment company or any business development company. The bill has been referred to the House Committee on Financial Services.
Baker said in his prepared statement that the mandatory registration of investment advisers reflects a "smart" approach to the regulation of advisers of all private pools of capital and should not just apply to hedge funds.
Groome said in his prepared statement that H.R. 711 would "seem to put the US registration approach on substantially the same basis as that operating in the UK, which [AIMA has] found to provide effective oversight and supervision." Groome noted, however, that one difference in approach would need to be addressed: unlike the UK regulatory scheme, H.R. 711 in its current form would apply to non-US based investment managers who do not operate from a place of business in the US if they have even one US client. Groome noted that this would raise the issue of dual registration, a process the G30 discouraged (the G30 report calls for determining jurisdiction based on "the primary business location of the manager of such funds, regardless of the legal domicile of the funds themselves").
Both Baker and Groome said they support a de minimis exception for the smallest investment advisers. Groome stated that AIMA supported an exemption for managers with less than US$500 million in assets under management (but noted that a larger threshold amount might be more practical). Baker did not propose a specific amount but said the exception should be "narrowly tailored so as not to create a broad, unintended loophole from registration," which he noted goes beyond that recently called for by Treasury Secretary Geithner, who called for registration only of advisers to the largest and most systemically relevant funds.
The chairman of the House Financial Services Committee said the next day that he expects Congress to require hedge funds to register and answer to the U.S. Securities and Exchange Commission ("SEC") in the near future. Rep. Barney Frank (D-Mass.), who spoke at a meeting of the Financial Industry Regulatory Authority, had previously said he expected hedge funds to register under a broad financial regulation package he plans to introduce later this year.
MFA prepared statement: available here (PDF)
AIMA prepared statement: available here (PDF)
Hearing transcript: will be posted here shortly (HTML)
H.R. 711 (Hedge Fund Advisers Registration Act of 2009): available here (HTML)
Story: US Lawmaker Expects Hedge Funds Will Answer to SEC, Reuters (May 11, 2009)