On May 26, 2009, Connecticut’s Senate passed a bill that, if passed by the House and signed into law by the Governor, would require investment advisers to hedge funds and other private investment funds, whether or not registered with the Securities and Exchange Commission (SEC), to disclose “material conflicts of interest.”
The heart of Connecticut Senate Bill No. 953, “An Act Concerning Hedge Funds,” is Subsection 1(b), which provides: “Any investment adviser to a private investment fund, regardless of whether such investment adviser is registered with the United States Securities and Exchange Commission, shall comply with the disclosure requirements of Rule 204-3 under the Investment Advisers Act of 1940 . . . provided nothing in this subsection shall require the disclosure of any information other than material conflicts of interest of the investment adviser.”
Legislative History
John Brunjes, a Partner in the Private Investment Funds Group of Bracewell & Giuliani LLP, and head of the firm’s Fund Formation practice, noted in a discussion with The Hedge Fund Law Report that the bill as adopted by the Senate is a considerable change from earlier versions of this bill. See “Trio of Bills Proposed in Connecticut Legislature Would Introduce Substantial State Regulation of Hedge Funds,” The Hedge Fund Law Report, Vol. 2, No. 9 (Mar. 4, 2009). The bill began life with the goal of raising qualifications for investors in private funds that have offices in Connecticut where employees regularly conduct business on behalf of the funds, as well as requiring specific disclosures with respect to fund management.
“This started out as a fund manager registration bill,” Brunjes said. “Presumably the Senators realized they were unfairly burdening Connecticut’s in-state managers. So it has developed into something that looks like an investor-protection scheme. One perverse consequence is that these disclosure requirements may dissuade legitimate out-of-state managers from doing business in Connecticut, depriving this state’s investors of credible alternative investment opportunities.” That bill would impose its disclosure requirements on two sets of investment advisers to private investment funds – those based in Connecticut, as well as out-of-state advisers who solicit investors in Connecticut.
Likelihood of Passage
Although the Senate voted 24 to 12 in favor of the bill, prospects for passage remain uncertain. Peter J. Bilfield, a Partner at Shipman & Goodwin LLP, explained to The Hedge Fund Law Report: “The current legislative session ends on June 3, leaving little time for the House to act. Even if the session ends without action by the House, there is a special session this summer, and it is possible, although unlikely, that the issue of hedge fund regulation (in a more robust form than currently contemplated) could be included in its business.”