Compliance March 9, 2007

Grassley Presses for Hedge Fund Registration

March 9, 2007 (PLANSPONSOR.com) - Concerned about pension fund exposure to the asset class, a senior lawmaker is calling for greater hedge fund registration.
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“The secretive way that hedge funds operate might not be an issue for the super rich who first invested in hedge funds, but today the average Joe has a stake as pension funds are invested in hedge funds,” said Senator Chuck Grassley (R-Iowa), who has offered an amendment that would require hedge funds to register with the Securities and Exchange Commission.  

Grassley filed his amendment to S.4, the 9-11 homeland security legislation now being debated by the full Senate. Grassley said the amendment is relevant to the larger bill as reports have indicated terrorist links to some pooled investment groups including hedge funds.  “My amendment gives Congress a good opportunity to say there should be greater transparency with hedge funds,” Grassley said.  

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Statutory Exemption

Grassley’s amendment would affect section 203(b)(3) of the Investment Advisors Act of 1940 (15 U.S.C. § 80b-3(b)(3)), which currently provides a statutory exemption from registration for investment advisers who had fewer than fifteen clients in the preceding twelve month period and who does not hold himself out to the public as an investment adviser.   According to a  press release , the amendment would narrow the exemption that is currently used by large, private pooled investment vehicles to avoid registering with the Securities and Exchange Commission.

The amendment would authorize the SEC to require investment advisers to register

unless the advisor:

  • had $50,000,000 or less in assets under management,
  • had fewer than fifteen clients,
  • did not hold himself out to the public as an investment advisor, and
  • managed the assets of fewer than fifteen investors, regardless of whether the investors participate directly or through a pooled investment vehicle, such as a hedge fund.

Call for Action

Introducing the bill, Grassley said Congress needs to act because the D.C. Circuit Court of Appeals last year overturned a regulation imposed by the Securities and Exchange Commission requiring hedge funds to register.   The appellate court said the SEC failed to justify its definition of “client” in the new rule and that its interpretation “falls outside the bounds of reasonableness” and comes close to violating “the plain language” of the 1940 Investment Advisers Act (see  Court Throws out Hedge Fund Registration Rule ).    

The rule imposed by the SEC last year would have required managers that run hedge funds with at least 15 US clients to register as an investment adviser with the SEC.   It required each hedge fund investor to be counted as a client, forcing most large managers to register with the SEC, and to provide the SEC with basic information about themselves and submit to spot inspections (See  SEC Imposes Hedge Fund Registration ).   The SEC subsequently said it would not appeal the appellate court decision (see  SEC Will Not Appeal Ruling on Hedge Fund Registration ).

Compliance March 8, 2007

U.S. House Mental Health Parity Bill Differs from Senate Bill

March 8, 2007 (PLANSPONSOR.com) - The mental health care benefits parity legislation introduced in the U.S. House on Wednesday would require group health plans to treat cost-sharing requirements for mental health the same as for other medical conditions, but strays from the U.S. Senate version passed last month.
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According to Business Insurance, the House proposal is similar to the one passed by the Senate Health, Education, Labor and Pensions Committee in February (See Senate Committee Approves Mental Health Parity Bill ) in that it exempts small employers and those companies whose costs would rise more than 2% during the first plan year as a result of the requirement.

The two differences between the House and Senate version of the bill are:

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  • The House version hands more power to the states to set stronger standards governing cost sharing and treatment parity for mental health care services, rather than preempting state control of the issue like the Senate bill calls for.
  • The House bill requires the employer to provide coverage for the same range of mental disorders and illnesses which are covered by federal health care plans available to members of Congress, where the Senate bill gives employers discretion over what disorders to cover.

The House measure was introduced by Representatives Patrick Kennedy, (D-Rhode Island), and Jim Ramstad, (R-Minnesota). The chief sponsors of the Senate bill have warned that their backing depends on no significant changes being made to the legislation, according to Business Insurance.

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