Revised Version of Private Fund Investment Advisers Registration Act of 2009 Contains Exemption for Advisers to “Venture Capital Funds”
On October 1, 2009, Rep. Paul Kanjorski (D-PA), chairman of the U.S. House of Representatives Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, released draft legislation nearly identical to proposed legislation released by the Obama administration in July, with one major exception: Rep. Kanjorski’s bill, which can be found here, would exempt any adviser to a “venture capital fund” from the registration requirements of the bill.
As described in Goodwin Procter’s July 21, 2009 Financial Services Alert, the Obama administration’s proposed version of the Private Fund Investment Advisers Registration Act of 2009 would (i) effectively require every adviser to “private funds” (including hedge funds, private equity funds and venture capital funds) with at least $30 million in assets under management to register with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, without regard to the adviser’s number of clients,11 Under current law, an adviser with fewer than 15 clients generally is exempt from registration. For this purpose, a private fund often may be treated as a single client of an adviser without regard to the number of investors participating in the fund. and (ii) impose upon registered advisers enhanced recordkeeping and reporting obligations designed to help the SEC and other government agencies identify and monitor threats to the stability of the economy.
Rep. Kanjorski’s proposed version of the Private Fund Investment Advisers Registration Act of 2009 would specifically direct the SEC to identify and define the term “venture capital fund” and to provide an exemption for advisers to such funds. The proposed legislation would also require advisers to venture capital funds to maintain certain records and provide annual and other reports to the SEC, as determined by the SEC to be “necessary or appropriate in the public interest or for the protection of investors.” Because the Kanjorski bill does not include a definition of “venture capital fund,” but instead directs the SEC to define the term, it is not yet clear how the SEC would define “venture capital fund” or if the definition would be broad enough so that certain advisers to private equity and buyout funds might also qualify for the exemption.
We will continue to monitor the progress of the proposals now pending in Congress and any other related proposals and will advise on material developments.
1 Under current law, an adviser with fewer than 15 clients generally is exempt from registration. For this purpose, a private fund often may be treated as a single client of an adviser without regard to the number of investors participating in the fund.