I would like to thank the staff of the Division of Investment Management and staff in the other divisions and offices who worked hard on the recommendations before us today. I won’t repeat each of your names, as they have been mentioned already this morning, but I appreciate the work that each one of you has put into the recommendations. I would also like to especially recognize Buddy Donohue on his final day at the agency. Buddy has provided the Commission with exceptionally valuable service, and his vision and expertise, not to mention his sense of humor, will be sorely missed.
Before us today are a pair of companion releases that would implement certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and take other important action. The staff has already gone through the provisions of each release in significant detail, so, as I generally support their recommendations, I would only like to highlight a few things.
The Dodd-Frank Act amended the Advisers Act to repeal the “private adviser exemption,” which advisers to many hedge funds and other funds have relied on to avoid registration with the agency. This was a critical step in bringing important Commission oversight into the private fund industry, and was long overdue. Although Congress provided exemptions from registration for advisers to venture capital funds and advisers to private funds with assets under management in the United States of less than $150 million, it required the Commission to adopt rules requiring these advisers to maintain records and provide reports to the Commission in the public interest and for the protection of investors.
Today we are implementing the reporting requirement by proposing to require these advisers to provide information important to regulatory purposes. Aside from the fact that Congress required us to seek information to protect investors and public interest, this information will be important for the Commission and other regulators to understand and provide oversight to this segment of the private fund industry. Although these entities do not register with us, Congress determined that it is important for us to have information about them and that this aspect of the industry be overseen.
I believe that it is important that we have information about these advisers. We do not want potentially important segments of the marketplace to remain opaque to regulators.
I will be interested in comment on whether we have proposed to require the right amount of information, whether tied to Form ADV or otherwise. We have asked several questions in the release about this, and I encourage comment on them.
We are also proposing amendments to define “venture capital funds,” as directed by the Dodd-Frank Act. Our staff looked to testimony before Congress and attempted to capture a definition characteristic of these funds. Given the nascent stage of these discussions, I will be interested in comments on these provisions as the Commission moves forward in our oversight of private funds. I am also interested in whether the grandfathering provision strikes the right balance, as it is written quite broadly.
I am also supportive of the staff’s recommendations here to amend Form ADV more generally to provide us with information to better identify potential compliance risks. These changes would require advisers to provide important information about private funds they advise, enhanced information about their business and business practices that present conflicts of interest, and about non-advisory and financial industry affiliations. I believe that these changes are long overdue, and I look forward to comments on them.
I’ll briefly mention one more aspect of the proposals, which is that we are amending our pay to play rule to accommodate changes made by the Dodd-Frank Act. These provisions are of significant importance, and I expect the staff to monitor developments closely and to make additional recommendations to us as necessary.