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Corporate Governance

: The Harvard Law School Corporate Governance Blog

Pending U.S. and E.U. Legislation Promises Broad Changes for Private Fund Managers

By Harvard Law School Program on Corporate Governance

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Editor?s Note: Andrew R. Brownstein is a partner in the Corporate Department at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Brown, Andrew J. Nussbaum, Steven A. Cohen and Amanda N. Persaud.

Responding to the recent financial crisis, the U.S. and E.U. governments are taking steps to implement a broad extension of regulatory power to a wide range of private investment fund managers that previously operated globally subject to limited or no direct regulation.

Pending U.S. Legislation

The Restoring American Financial Stability Act, passed by the Senate, requires any investment adviser, other than an investment adviser to a ?private equity fund? or ?venture capital fund,? that has at least $100 million of assets under management, to register with the SEC and requires these advisers to maintain extensive records and reports. On its face, the bill would require investment advisers to hedge funds to register with the SEC, although the bill leaves it to the SEC to define ?private equity funds? and ?venture capital funds.? Similar to the House bill, investment advisers who are required to register will be subject to significantly increased reporting and disclosure obligations for each private fund they advise, including as to the amount of assets under management, use of leverage, counterparty credit risk exposures, trading and investment positions, trading practices, valuation policies and practices, asset-types held and side letter arrangements, along with other information the SEC deems necessary. Even exempt advisers will be required to maintain certain detailed records and reports. The bill also provides a limited exemption for certain ?foreign private advisers? that have no place of business in the U.S., manage less than $25 million attributable to U.S. clients and have fewer than 15 U.S. clients.

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Full post as published by The Harvard Law School Corporate Governance Blog on May 29, 2010 (boomark / email).