On October 1, Congressman Paul Kanjorski, Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, released a discussion draft of legislation titled the Private Fund Investment Advisers Registration Act of 2009 that largely mirrors the Private Fund Investment Advisers Registration Act of 2009 proposed on July 15 by the Obama administration. Both proposals would amend the Investment Advisers Act of 1940 to require all U.S.-based investment advisors with more than $30 million in assets under management (including Commodity Futures Trading Commission-registered commodity trading advisors previously exempt from Securities and Exchange Commission registration) and all non-U.S.-based investment advisors with any U.S. clients (unless such foreign advisors qualify for a narrow exemption for “foreign private fund advisors”) to register with the SEC. This would affect managers of hedge funds, private equity funds and commodity pools, and many foreign fund managers currently exempt from SEC registration.
Congressman Kanjorski’s proposed legislation differs from the U.S. Treasury Department’s proposal mainly in adding a specific exemption from registration for managers of “venture capital funds” and authorizing the SEC to define by regulation the term “venture capital fund.” The discussion draft also authorizes the SEC to set recordkeeping and reporting requirements for exempt venture capital fund managers. It also adds specific authority for the SEC to set additional differing reporting requirements for “private fund advisors” based on the types or sizes of the private funds they advise and to classify persons within its jurisdiction, and prescribe different requirements based on those classifications, on the basis of size, scope, business model, compensation scheme or potential to create systemic risk. It appears that by changing the term used to refer to foreign advisors eligible for an exemption from registration from “foreign private advisor” to “foreign private fund advisor”, the discussion draft aims to authorize the SEC to include such non-U.S.-based advisors in any reporting requirements applicable to “private fund advisors.” Congressman Kanjorski’s discussion draft contains other technical differences from the Obama administration’s draft legislation with the same title, mainly attributable to the Congressman’s bill avoiding references to government bodies or terms that have not yet been approved by Congress, such as the yet-to-be-created “Financial Services Oversight Council” and “Tier 1 financial holding company.”
To read the discussion draft of the proposed legislation, click here.