Yesterday, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Regulating Hedge Funds and Other Private Investment Pools” to discuss legislation that would require all hedge fund advisers and the advisers of private equity and venture capital funds to register with the SEC. Testifying before the committee were:
- Mr. Andrew J. Donohue, Director of the Division of Investment Management
- U.S. Securities and Exchange Commission
- Mr. Dinakar Singh, Founder and Chief Executive Officer, TPG Axon Capital
- Mr. James Chanos, Chairman, Coalition of Private Investment Companies
- Mr. Trevor R. Loy, General Partner, Flywheel Ventures
- Mr. Mark B. Tresnowski, Managing Director and General Counsel, Madison Dearborn Partners, LLC
- Mr. Richard Bookstaber, Financial Author
- Mr. Joseph Dear, Chief Investment Officer, California Public Employees’ Retirement System
The panelists discussed S. 1276, the Private Fund Transparency Act of 2009, introduced by Senator Jack Reed (D-RI), which would require the investment advisers of all private funds to register with the SEC under the Investment Advisers Act of 1940. This is similar to private fund adviser registration legislation proposed yesterday by the Obama Administration.
Both the committee members and panelists were generally supportive of mandatory registration for all private fund advisers, and emphasized the need for increased transparency. Mr. Loy, however, warned of the dangers associated with requiring registration for the advisers of venture capital funds, which invest in new businesses and technologies, and do not utilize debt or derivative investments. He emphasized the need to distinguish between financial risk and entrepreneurial risk, and stated that the registration requirement would create a significant administrative burden for venture capital funds in exchange information that would not be useful for managing systemic risk.