Proposed Volcker Rule and the Effect on Private Fund Sponsors and Investors


The federal banking agencies and the SEC recently proposed regulations to implement Section 13 of the Bank Holding Company Act, also known as the Volcker Rule, adopted as part of the Dodd-Frank Act. The Volcker Rule prohibits proprietary trading and private fund investments and sponsorship by banking entities, subject to certain exceptions. This Alert addresses the restrictions on investments into private funds and the effect they will have on private fund sponsors, highlights certain issues and potential structuring opportunities that are applicable to private fund sponsors, and identifies some issues that require further clarification. This Alert does not discuss the proposed regulations that seek to implement the Volcker Rule’s prohibitions on proprietary trading by banking entities.

General Prohibitions on Private Equity and Hedge Fund Investments or Sponsorship

Subject to certain exceptions discussed below, the Volcker Rule will prohibit a “banking entity” from acquiring or retaining any equity, partnership or other ownership interest in, or otherwise sponsoring or investing in any private fund, which would include most hedge funds or private equity funds, after the Volcker Rule’s effective date.

The Volcker Rule will have an impact on most private fund investments made and interests held in these funds by banking entities.

Please see full alert below for more information.

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