Friday, July 17, 2009

The SEC is setting themselves up for another disaster

Th Obama administration recently proposed legislation entitled the Private Fund Investment Advisers Registration Act of 2009 that would amend the Investment Advisers Act of 1940 in a number of ways. The key impact is of this bill is requiring all U.S.-based investment advisers with more than $30 million in assets under management to register with the SEC.

This would affect managers of hedge funds, private equity funds and venture capital funds, and many foreign fund managers. This will include privately managed family money.

So this is how far we have come in the US? If you are managing $30 million of private family money, you would need to dish out $50+ K to register.

In addition the bill proposes to give the SEC the authority to require registered investment advisers to provide the SEC with reports containing information such as (without limitation) assets under management, use of leverage, counterparty credit risk exposures, trading and investment positions and other information.

"Counterparty credit risk" for a $30 million dollar venture fund? And what exactly is the SEC going to do with this information?

As usual, this is an overreaction that will completely overwhelm the SEC. They can't even manage information they get from investment advisers that are currently registered - the large hedge funds. Now add thousands of small venture funds, private pools of money, even investment clubs. Do they understand how many managers there are in the US that manage pools of over $30mm? Rather than creating smart regulation, they are gearing up to effectively tax and rubber stamp these managers, because that is all they will be able to do. But this bill will NOT address the Madoff types of issues, instead becoming a burden to small asset managers and the taxpayer.

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