Tuesday, May 11, 2010

Reed Amendment Would Impose SEC Registration on Advisers to Private Equity and Venture Capital Funds, in Addition to Hedge Fund Advisers

An amendment to the Senate financial reform legislation would extend mandatory SEC registration to advisers to private equity funds and venture capital funds. Currently, S3217 requires hedge fund advisers to register with the SEC, and exempts adviser to private equity and venture capital firms. The House financial reform legislation requires registration of hedge fund and private equity fund advisers, while exempting advisers to venture capital funds.

The amendment is sponsored by Senator Jack Reed, Chair of the Senate Securities Subcommittee. In order to ensure that the new adviser registration threshold does not weaken existing oversight, the Reed Amendment would require advisers that fall below the new $100 million adviser registration threshold set by S3217 to either be registered and examined by a state regulator, or registered with the SEC.

Senior members of the Senate Banking Committee co-sponsored the Reed Amendment out of a concern that advisers who today are managing hedge funds could tomorrow be operating a private equity or venture capital fund in order to avoid registration. The members believe that it is important to require registration by hedge funds, private equity and venture capital to collect the best data on these firms, fill regulatory gaps and prevent regulatory arbitrage.