Statements on Introduced Bills and Joint Resolutions

Floor Speech

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - June 16, 2009)

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By Mr. REED:

S. 1276. A bill to require investment advisers to private funds, including hedge funds, private equity funds, venture capital funds, and others to register with the Securities and Exchange Commission, and for other purposes; to the Committee on Banking. Housing, and Urban Affairs.

Mr. REED. Mr. President, today I introduce the Private Fund Transparency Act of 2009, which requires investment advisers to private funds, including hedge funds, private equity funds, venture capital funds, and others, to register with the Securities and Exchange Commission, SEC.

The current financial crisis has reinvigorated my long-held concern that the regulation of hedge funds and other pooled investment vehicles should be improved to provide more information to regulators to help them address fraud and prevent systemic risk in our capital markets.

Hedge funds and other private investment funds generally operate under exemptions in federal securities laws that recognize that not all investment pools require the same close scrutiny demanded of retail investment products like mutual funds. Hedge funds generally cater to more sophisticated investors who are responsible for ensuring the integrity of their own investments, and as a result are permitted to pursue somewhat riskier investment strategies. Indeed, these funds play an important role in enhancing liquidity and efficiency in the market, and subjecting them to fewer limitations on their activities has been and continues to be a reasonable policy choice.

However, the existing regulatory regime for these funds has enabled them to operate largely outside the framework of the financial regulatory system even as they have become increasingly interwoven with the rest of the country's financial markets. As a result, there is no data on the number and nature of these firms or ability to calculate the risks they pose to America's broader economy. Over the past decade the SEC has recognized there are risks to our capital markets posed by some of these entities, and it has attempted to require at a minimum that advisers to these funds register under the Investment Advisers Act so that SEC staff can collect basic information from and examine these private pools of capital. The SEC's rulemaking in this area, however, was rejected by a federal court in 2006. As a result, without statutory changes, the SEC is currently unable to examine private funds' books and records or to take sufficient action when it suspects fraud. In addition, no regulator is currently able to collect information on the size and nature of hedge funds or other funds to identify and act on systemic risks that may be created by these pools of capital.

The bill I introduce today is crafted carefully to eliminate these regulatory gaps without unnecessarily limiting the beneficial aspects of such pools. It would require all hedge fund and other investment pool advisers that manage more than $30 million in assets to register as investment advisers with the SEC. It would also provide the SEC with the authority to collect information from these entities, including information about the risks they may pose to the financial system. Finally, it authorizes the SEC to require hedge funds and other investment pools to maintain and share with other Federal agencies any information necessary for the calculation of systemic risk.

The financial crisis is a stark reminder that transparency and disclosure are essential in today's marketplace. Improving oversight of hedge funds and other private funds is vital to their sustainability and to our economy's stability. These statutory changes will help modernize our outdated financial regulatory system, protect investors, and prevent fraud. I hope my colleagues will join me in improving the oversight of hedge funds and other private pools of capital by cosponsoring this legislation and supporting its passage.

Mr. President, I ask unanimous consent that the text of the bill be printed in the RECORD.

There being no objection, the text of the bill was ordered to be printed in the RECORD, as follows:

S. 1276

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