Tag Archives: SEC

Some Questions and Concerns for Hedge Fund Managers

Questions and Concerns

My last post was an open letter to hedge fund managers and private equity investors, and I’d like to share a few follow up concerns and questions.

Fund marketing must be more transparent. Firms must provide historical documents showing how they calculate internal rates of return.

What if some numbers in a firm’s marketing materials contradict numbers in its SEC filings for non fraudulent reasons? Will the firm be liable and subject to sanctions?

The SEC is permitted to share information with certain agencies. Will this lead to congressional access resulting in investment strategies becoming a matter of public record?

What is Next?

After the Advisors Act deadline passes, buyout shops will have a new Form PF which private equity firms will be required to file once a year within 120 days of the end of the fiscal year.

Firms with at least $2 billion in assets under management will be required to answer questions at the portfolio-company level about leverage, bridge financing and financial-industry investment. Firms with over $5 billion in assets must file Form PF following the first fiscal year after June 15, 2012. Firms with under $5 billion must begin filing the first year after December 15th of this year.

The Volker Rule

The Volcker Rule, which is to be finalized in the next few months, will prohibit banks from engaging in proprietary trading and from owning proprietary or sponsoring private equity funds.

One question: Will break-ups be truly “arms length” or will banks have merely created third party entities to do proprietary trading? What do you think?

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Dear Private Equity Investors and Hedge Fund Managers: It’s Time to Register with the SEC

Private equity investors and hedge fund managers must register with the Securities and Exchange Commission (“SEC”) under the Investment Advisors Act of 1940 (“Advisors Act”).  This additional monitoring at the fund and portfolio company level starts this year depending on the size of the firm.

The February 14th filing deadline for registration arose out of the passage of the Dodd Frank Wall Street Reform and Consumer Protection Act in July 2010.

In November 2010, the SEC proposed a set of rules to implement the new requirement that private equity firms come under the purview of the Advisors Act. Many venture capital firms and the smallest fund managers are exempt.

This monitoring will be an ongoing administrative task. Firms will most likely find it necessary to designate a compliance officer. The compliance manual and monitoring programs are important to guard against insider trading, for example.

The SEC has set the February 14th deadline for registration. Thereafter, the SEC will work on approving the registrations before the final compliance date of March 30th.

“Filing the SEC registration form after February 14 won’t violate industry rules, but advisers risk that their applications may be rejected, or require more information,” said Guy Talarico, chief executive officer of Alaric Compliance Services LLC, a New York-based consulting firm.






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