A New Era in the Regulation of Private Investment Funds
July 26, 2010
Investment Management and Private Investment Funds Practice
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act) - which became law on July 21, 2010 (the Enactment Date) marks a new era in the regulation of private investment funds, including hedge funds and many private equity and real estate funds, and their investment managers. The Act not only mandates registration for many investment managers of private investment funds, it also seeks to limit the retailization of private investment funds by increasing the net worth requirements for investors in these funds. In addition, the Act imposes new recordkeeping and reporting requirements on investment managers to private investment funds to ensure that the Securities and Exchange Commission (SEC) and the newly established Financial Stability Oversight Council (the Oversight Council) receive information needed to properly regulate private investment funds and manage systemic risk to the financial system. Finally, the Act limits the ability of banks and their affiliates to sponsor and invest in private investment funds and requires the SEC to conduct a number of important studies over the next three years, which may lead to future regulation or legislative action. The Act is of major significance to private investment funds and their investment managers. The Act greatly expands the SECs authority to regulate investment managers to private investment funds, and accordingly is only the first step in what is likely to be an ongoing and increasing regulatory presence in the private investment fund industry.