On January 29, 2009, Senators Carl Levin and Charles Grassley introduced a bill in the Senate entitled the Hedge Fund Transparency Act (the “Transparency Bill”). The Transparency Bill would require hedge funds and other unregistered private investment funds (collectively, “private funds”) with at least $50 million in assets (including venture capital and private equity funds) to register under the Investment Company Act of 1940 (“Company Act”) with the Securities and Exchange Commission (the “SEC”). The bill would also have the effect of requiring investment advisers to these funds to register with the SEC under the Investment Advisers Act of 1940 (“Advisers Act”).¹ Registered private funds would be exempt from most provisions of the Company Act, but would have to maintain certain books and records, make an annual information filing, and establish anti-money laundering programs.

Separately, on January 27, 2009, Representatives Michael Capuano and Michael Castle introduced a bill in the House of Representatives entitled the Hedge Fund Adviser Registration Act of 2009 (the “Registration Bill”). The Registration Bill would remove the exemption from registration under the Advisers Act for advisers that had fewer than fifteen clients during the preceding twelve months, thus requiring all investment advisers with assets of $30 million or more to register with the SEC.

Currently, private funds are typically excepted from the definition of investment company under Sections 3(c)(1) (for private funds owned by not more than 100 beneficial owners) or 3(c)(7) (for private funds owned exclusively by qualified purchasers) of the Company Act, and therefore not required to register as investment companies under the Company Act. The Transparency Bill would require a 3(c)(1) or 3(c)(7) fund with $50 million or more in assets to register with the SEC and to comply with the following requirements:

• Maintain books and records required by the SEC
• Cooperate with any request for information or examination by the SEC
• Establish an anti-money laundering program²
• File a publicly available information form electronically with the SEC, at least annually, that includes the following:
• The name and current address of each individual that is a beneficial owner of the fund and each company with an ownership interest in the fund
• The fund’s primary accountant and primary broker
• An explanation of the structure of ownership interests in the fund
• Information on any affiliation of the fund with another financial institution
• A statement of any minimum investment commitment required of investors
• The total number of investors
• The current value of the fund’s assets

Failure to fully comply with these requirements would subject a registered private fund to the substantive provisions of the Company Act, and most private funds would find compliance with the Company Act extremely difficult.

Private funds with less than $50 million in assets will be treated as investment companies for purposes of the Company Act, but generally exempted from the substantive provisions of the Company Act, and would have no registration or annual filing requirement.

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We anticipate that there will be significant revisions made to the Transparency Bill and to the Registration Bill to address regulatory and industry concerns. We will be monitoring this process and will update you from time to time.

If you have any questions concerning the foregoing, please contact your primary attorney in the Investment Management Group.

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¹ This conclusion is based on the assumption that a registered private fund would also be considered a registered investment company for purposes of Section 203 (b)(3) of the Advisers Act and, accordingly, the adviser to such a fund would be ineligible to rely upon the exemption for an investment adviser that advises fewer than 15 clients and does not hold itself out to the public as an investment adviser.

² Such a program would be required for all private funds without regard to assets.