SEC expands private fund oversight

US regulators expanded their oversight of the roughly $2 trillion hedge fund industry as a divided US Securities and Exchange Commission voted to require private fund advisers to register with the agency. The new rules, mandated by the Dodd-Frank Wall Street overhaul law, would force advisers to hedge funds and private equity funds with more than $150 million under management to register with the agency. Advisers will get until March 30, 2012 to comply - an extended deadline that gives them more time to prepare.
The vote was 3-2 on registration, with both Republicans on the commission objecting to a provision that would still subject some venture capital managers and smaller private fund managers to reporting rules, even though they would not have to register. Under the SEC's new rules, it is estimated that 750 private advisers to hedge funds and private equity funds will have to register with the agency. Advisers to venture capital funds can avoid registration under an exemption. Managers of private funds with fewer than $150 million of assets under management can also opt out of SEC registration.
An estimated 2,000 of these venture capital fund and smaller private fund advisers, however, would still be subject to certain less stringent reporting rules designed to help the SEC's enforcement operations. States, meanwhile could impose their own registration requirements for these advisers, and the SEC said it could conduct examinations if it suspects problems. Republican commissioner Troy Paredes said he was troubled the SEC was designing a regulatory framework for exempted advisers that in essence would closely resemble the regime for registered advisers.
Under the rule, the threshold for investment advisers to register with the SEC would be raised from $25 million to $100 million, in a move expected to shift 3,200 advisers to state supervision. States would be in charge of overseeing these advisers as long as they have registration laws in place and have the ability to conduct examinations.