Private Fund Transparency Act of 2009 is Introduced in Congress

July 16, 2009


On June 15, 2009, Senator Jack Reed (D-R.I.) introduced in the Senate the Private Fund Transparency Act of 2009 (the “PFTA”), which is the third bill introduced this year aimed at regulating “private funds,” including hedge funds, private equity funds and venture capital funds. The two prior bills introduced earlier this year were (1) the Hedge Fund Adviser Registration Act of 2009 and (2) the Hedge Fund Transparency Act.

The PFTA would limit the private adviser exemption to “foreign private advisers,” a new defined term under the PFTA. Currently, many advisers to private funds rely upon the private adviser exemption to avoid registering as an investment adviser with the Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940 (“Advisers Act”). In general the exemption provides that an adviser with less than 15 clients that does not hold itself out to the public is exempt from registration. By limiting the private adviser exemption to foreign private advisers, domestic advisers to private funds with greater than $30 million in assets under management would be required to register with the SEC.

In addition to limiting the private adviser exemption, the PFTA would provide the SEC with broad authority to require investment advisers to maintain records and to submit reports to the SEC to enable the SEC or another federal department or agency to supervise systemic risk. The Department of Treasury said in a press release that once registered, advisers to private funds will be subject to, among other things: (1) “substantial regulatory reporting requirements with respect to the assets, leverage, and off-balance sheet exposure of their advised private funds” and (2) “disclosure requirements to investors, creditors, and counterparties of their advised private funds.”

The PFTA is further evidence of the growing momentum for requiring advisers to private funds to register with the SEC. As a result, we are recommending that advisers to private funds begin preparing for registration by:

  • Developing an appropriate compliance infrastructure, including preparing a written supervisory procedure manual and code of ethics that is tailored to their business. Developing a compliance infrastructure can take a significant amount of time and should be started in advance of registration;
  • Reviewing their business activities to identify potential conflicts of interest, such as outside business activities of firm employees, allocation policies between clients with overlapping investment objectives, and conflicts in dedicating time among clients; and
  • Reviewing their existing compliance infrastructure to determine whether additional resources or compliance personnel are necessary to comply with the Advisers Act and related regulations. This would include identifying or hiring a person to serve as Chief Compliance Officer.


If you would like to discuss this matter further, please contact Chris Salter at (202) 383-5371, any of the following lawyers, or your primary contact at O’Melveny & Myers LLP.


Ilan S. Nissan

(212) 408-2443

Harvey M. Eisenberg

(212) 408-2416

Phillip Isom

(212) 408-2418

Barbara Stettner

(202) 383-5283

Kenneth J. Yellen

(202) 383-5228

Daniel Passage

(213) 430-6618

Kathryn Sanders

(213) 430-6376

Christopher Salter

(202) 383-5371

Bill Satchell

(202) 383-5342

Deborah Festa

(213) 430-6323


Peter Vaglio

(212) 326-2164