Private Investment Funds

On October 26, the Securities and Exchange Commission adopted Form PF, which it jointly designed with the Commodity Futures Trading Commission to collect systemic risk data about hedge funds and other private funds. The CFTC is expected to vote on adopting the form within the next week. While Form PF is not yet available, SEC Chairman Mary Schapiro indicated that the new form reflects changes to the original proposal. These changes include:Continue Reading SEC Adopts Form PF

On July 26, the Securities and Exchange Commission adopted Rule 13h-1 under Section 13(h) of the Securities Exchange Act of 1934. The rule is intended to help the SEC identify market participants engaged in substantial trading, obtain information needed to monitor the impact of those trades, and analyze such market participants’ trading activity.Continue Reading SEC Adopts Large Trader Reporting Regime

On July 12, the Securities and Exchange Commission issued an order raising the thresholds for determining who is a “qualified client” for purposes of Rule 205-3 under the Investment Advisers Act of 1940. Rule 205-3 exempts an investment adviser from the prohibition against charging a client performance fees in certain circumstances, including when the client is a qualified client. Under the order, a qualified client is one who: (1) has at least $1 million under the management of the adviser immediately after entering into the advisory contract, or (2) the adviser reasonably believes has a net worth of more than $2 million at the time the contract is entered into. These thresholds were raised from $750,000 and $1,500,000, respectively, to adjust for inflation, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The SEC’s order becomes effective on September 19.
Continue Reading SEC Raises “Qualified Client” Thresholds

Co-authored by Maxwell Li

On July 11, the U.S. Government Accountability Office (GAO) released a report on the feasibility of forming a self-regulatory organization (SRO) to provide primary oversight of private fund advisers. The report was part of a mandate by the Dodd-Frank Wall Street Reform and Consumer Protection Act to address the potential gap

The Securities and Exchange Commission has approved the Financial Industry Regulatory Authority’s proposed rule changes to Rule 5131 that delete paragraph (b)(1) and delay the implementation date of paragraphs (b) and (d)(4) until September 26. Removal of paragraph (b)(1) of Rule 5131, which would have required members to establish, maintain and enforce policies and procedures

Section 403 of the Dodd-Frank Wall Street Reform and Consumer Protection Act repeals, as of July 21, the private adviser exemption in Section 203(b)(3) of the Investment Advisers Act of 1940 and will require advisers relying on that exemption (including advisers to many hedge funds and other private funds) to register with the Securities and Exchange Commission.
Continue Reading SEC Chairman Acknowledges Extension of Investment Adviser Registration Deadlines

The U.S. Department of the Treasury has published a revised version of, and has delayed the first required filing of, the monthly report to the Federal Reserve Bank relating to the aggregate holdings of long-term securities by U.S. and foreign residents (Form SLT). Investment advisers and/or private investment funds that exceed the $1 billion threshold described below must file their first Form SLT report no later than October 23.Continue Reading Form SLT Revised and First Form SLT Filing Date Delayed

Co-authored by Maxwell Li

On February 8, the U.S. Federal Reserve Board adopted a final rule to implement the conformance period for compliance with the Volcker Rule, which generally prohibits banking entities from engaging in proprietary trading and from investing in, sponsoring, or having certain relationships with a hedge fund or private equity fund. The

On January 25, the Securities and Exchange Commission proposed rules amending the accredited investor standards under the Securities Act of 1933 to reflect the requirements of Section 413(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposed rules would amend Rules 215 and Rule 501(a)(5) of the Securities Act to exclude the value of a person’s primary residence from the $1 million net worth (or joint net worth) test for determining whether a person is an “accredited investor” under Regulation D. The proposed rules would also amend Rules 215 and Rule 501(a)(5) to clarify that net worth is calculated by excluding only the investor’s net equity in its primary residence by adding the phrase “calculated by subtracting from the estimated fair market value of the property the amount of debt secured by the property, up to the estimated fair market value of the property.” While this clarification (as well as the technical and conforming amendments referenced below) supplements Section 413(a) of the Dodd-Frank Act, the exclusion itself was effective upon enactment of the Dodd-Frank Act.
Continue Reading SEC Proposes Rules to Amend Net Worth Standard for Accredited Investor Definition

On January 18, the Financial Stability Oversight Council (FSOC) took three actions to satisfy statutory obligations imposed on it under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

1. Study on Implementation of the Volcker Rule

FSOC released the study on how best to comprehensively implement the Volcker Rule in a manner that constrains risk-taking by, and promotes the safety and soundness of, banking entities that is required under Section 619 of the Dodd-Frank Act. The study included the following key recommendations by the FSOC that seek to identify and eliminate prohibited proprietary trading activities and investments in or sponsorships of hedge funds and private equity funds by banking entities:Continue Reading FSOC Issues Two Studies and One Proposed Rule