On January 29, Senators Charles Grassley and Carl Levin introduced the Hedge Fund Transparency Act (HFTA) as a bill in the U.S. Senate. HFTA would apply to entities that rely on the exemptions currently provided by Sections 3(c)(1) and 3(c)(7) of the Investment Company Act, which include most hedge funds and private equity funds. HFTA would also move these exemptions to Section 6(a) of the Investment Company Act to (as stated by Sen. Levin in his Senate floor speech) “make clear that hedge funds really are investment companies.”  

If enacted in the form proposed, each private investment fund relying on the current 3(c)(1) or 3(c)(7) exemption with assets of $50 millionwould be subject to (i) SEC registration, (ii) an annual filing, and (iii) a duty to maintain books and records required by the Securities and Exchange Commission and cooperate with any SEC examination or request for information. The annual filing would be publicly available and include the following information:  

  • the name and address of the primary accountant, primary broker and each owner of the fund (including each natural person who is a beneficial owner);
  • affiliations with other financial institutions;  
  • any minimum investment requirement; and  
  • the current value of “assets” and “assets under management.”  

HFTA would make certain anti-money laundering (AML) requirements applicable to any private investment fund relying on the current 3(c)(1) or 3(c)(7) exemption (irrespective of whether the fund has assets of $50 million), including requirements to:  

  • report suspicious transactions;
  • provide account information and documentation to authorities within 120 hours of an AML-related request;
  • use risk-based due diligence policies, procedures and controls reasonably designed to ascertain the identity of and evaluate any foreign investor (including beneficial owners); and  
  • establish AML programs, including at a minimum: (i) development of internal policies, procedures and controls; (ii) designation of a compliance officer; (iii) ongoing employee training; and (iv) an independent audit function.  

The bill tasks the SEC and the Secretary of the Treasury, respectively, with implementing the substance of the bill. A copy of the bill is available at: