US Treasury announces RIA threshold

Have more than $30 million in assets under management? Get ready to register.

The US Treasury in mid-July finally delivered more details on the Obama administration’s plan to force hedge and private equity funds to register with the Securities and Exchange Commission. After two earlier proposals from Treasury Secretary Timothy Geithner were roundly criticised for their vagueness and lack of specific information, the department released a fact sheet filling in some of the gaps.

Among the new information released was a dollar amount for what the administration had previously described as a “modest” threshold of assets under management above which managers would have to register as investment advisors – $30 million.

Many industry sources had said they were hoping for a number closer to $100 million or even $150 million, which is said to be the lowest amount of capital at which a firm can afford the costs of registration.

Though private equity and venture capital managers alike have vigorously protested that their activities do not contribute to systemic risk, the Treasury disagrees: “At various points in the financial crisis, de-leveraging by [private equity and hedge] funds contributed to the strain on financial markets,” the Treasury said in a statement. “Because these funds were not required to register with regulators, the government lacked the reliable, comprehensive data necessary to monitor funds’ activity and assess potential risks in the market.”

In terms of what information will need to be reported once the investment advisors are registered, the latest proposals go into far more detail than the previous draft, which merely said “The advisers should be required to report information on the funds they manage that is sufficient to assess whether any fund poses a threat to financial stability.” The new release elaborates:

  • Substantial regulatory reporting requirements with respect to the assets, leverage, and off-balance sheet exposure of their advised private funds
  • Disclosure requirements to investors, creditors, and counterparties of their advised private funds
  • Strong conflict-of-interest and anti-fraud prohibitions
  • Robust SEC examination and enforcement authority and recordkeeping requirements
  • Requirements to establish a comprehensive compliance program

Those requirements would include “confidential reporting” of amount of assets under management, borrowings, off-balance sheet exposures, counterparty credit risk exposures, trading and investment positions, and “other important information relevant to determining potential systemic risk and potential threats to our overall financial stability”, the statement says. The SEC would then share the disclosure reports received from the advisors with the Federal Reserve and the Financial Services Oversight Council.

If any of the managers are determined to pose a threat to overall financial stability, the SEC would consider supervising and regulating them as Tier 1 Financial Holding Companies.