As noted earlier on this blog, the House Financial Services Committee last month approved a bill to require advisers to hedge funds, private equity firms, and other private pools of capital of a certain size to register with the SEC under the Investment Advisers Act of 1940. Advisers to venture capital funds would be exempt from the requirement to register, as such, although VC fund advisers would still face record-keeping and reporting obligations "as the Commission determines necessary or appropriate in the public interest or for the protection of investors."
The bill as earlier approved by committee appears to remain intact as Section 5001 through Section 5011 of the 1,279 page "Wall Street Reform and Consumer Protection Act of 2009," which Reuters reports the full House began debating today. Intact, with one interesting amendment proposed by Rep. Stephanie Herseth Sandlin of South Dakota.
Rep. Herseth Sandlin's amendment would modify the section of the Investment Advisers Act of 1940 that delineates the kinds of information that an investment adviser may need to supply to the SEC in the process of registering. Specifically, her amendment provides that the SEC "shall take into account the relative risk profile of different classes of private funds as it establishes, by rule or regulation, the registration requirements for private funds." In other words, the kinds of information a private fund may have to supply to the SEC when registering should vary depending on what kind of private fund it is.
Rep. Herseth Sandlin's amendment would not appear to directly impact the interests of venture capital funds in the House legislation, as the bill otherwise exempts advisers to VC funds from registration. However, I wonder if the instruction to the SEC to "take into account the relative risk profile of different classes of private funds" with regard to information supplied at registration might impact how the SEC approaches drafting the venture capital fund adviser record keeping and reporting requirements that are yet contemplated in the bill before the House. (As also reported earlier on this blog, the Senate version of private fund registration legislation has neither registration nor reporting requirements for advisers to VC funds.)
And just what kinds of information might be required of a fund adviser when registering with the SEC? Here's what the current statute says (15 USC 80b-3(c)):
An investment adviser, or any person who presently contemplates becoming an investment adviser, may be registered by filing with the Commission an application for registration in such form and containing such of the following information and documents as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors:
(A) the name and form of organization under which the investment adviser engages or intends to engage in business; the name of the State or other sovereign power under which such investment adviser is organized; the location of his or its principal business office and branch offices, if any; the names and addresses of his or its partners, officers, directors, and persons performing similar functions or, if such an investment adviser be an individual, of such individual; and the number of his or its employees;
(B) the education, the business affiliations for the past ten years, and the present business affiliations of such investment adviser and of his or its partners, officers, directors, and persons performing similar functions and of any controlling person thereof;
(C) the nature of the business of such investment adviser, including the manner of giving advice and rendering analyses or reports;
(D) a balance sheet certified by an independent public accountant and other financial statements (which shall, as the Commission specifies, be certified);
(E) the nature and scope of the authority of such investment adviser with respect to clients’ funds and accounts;
(F) the basis or bases upon which such investment adviser is compensated;
(G) whether such investment adviser, or any person associated with such investment adviser, is subject to any disqualification which would be a basis for denial, suspension, or revocation of registration of such investment adviser under the provisions of subsection (e) of this section; and
(H) a statement as to whether the principal business of such investment adviser consists or is to consist of acting as investment adviser and a statement as to whether a substantial part of the business of such investment adviser, consists or is to consist of rendering investment supervisory services.