Withers Worldwide

On October 27, 2009, the House Financial Services Committee reported to the whole House H.R. 3818, the Private Fund Investment Advisers Registration Act of 2009, introduced by Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises. The Committee passed H.R. 3818 with extensive bipartisan support by a vote of 67-1

The Committee's bill and the accompanying Committee Report have not yet been made available. However, based on published reports, the Committee would exempt investment advisers with less than $150 million in assets under management from SEC registration, although they would still be subject to annual reporting requirements. Based on public statements made by Rep. Kanjorski and a press release issued by the Committee, the bill is specifically intended to apply to family offices.

The Committee bill contemplates that the records and reports required of investment advisers with assets under management of $150 million or more would disclose (i) the amount of assets under management; (ii) the use of leverage (including off-balance sheet leverage); (iii) counterparty credit risk exposures; (iv) trading and investment positions; and (v) trading practices. Investment advisers who are covered by the new regulations would be required to disclose to investors, prospective investors, counterparties and creditors such reports, records and other documents as may be determined by the SEC. The reporting requirements of investment advisers that fall below the $150 million threshold are not specified in the Committee bill, but rather left for later determination in an SEC rule making proceeding.

Under the proposal as passed by the Committee, the registration and reporting requirements would become effective one year from final passage of the legislation. It does not appear that any significant action has taken place on the other proposals identified in our August Alert.

In order to become law, the Private Fund Investment Advisers Registration Act of 2009 will need to be approved by the full House of Representatives and the Senate. We are unable to predict at this time when action by the full House and Senate is likely to occur. However, with the passage of this bill by a key House Committee, we have moved one step closer to a requirement that family offices will be required to register under the U.S. Investment Advisers Act. As regulation of family offices by the SEC becomes increasingly likely, we encourage you to begin considering how you might respond to registration and reporting obligations and whether you can avoid or minimize the effects of regulation by restructuring your organization.