On January 15, 2009, a steering committee of the Group of Thirty issued Financial Reform: A Framework for Financial Stability.¹ Under the leadership of Paul Volcker, former chairman of the Federal Reserve Board and chairman-designate of the Economic Recovery Advisory Board under President-elect Barack Obama, the committee was launched in July 2008 and developed recommendations on prospective financial reform. The Group of Thirty is a private, nonprofit, international body composed of senior representatives of the private and public sectors and academia.

As a core recommendation, the committee proposes that all systemically significant financial institutions, regardless of type, should be subject to an appropriate degree of prudential oversight. From that core recommendation, the committee recommends "national prudential regulator" oversight of managers of private pools of capital that borrow significant amounts. The recommendation would apply to hedge funds and arguably also to private equity funds, but the recommendation expressly makes an exception for venture capital funds. The prudential oversight would be applied on an internationally consistent basis and include:

• a registration requirement for funds determined to be potentially systematically significant and of a minimum size;
  periodic regulatory reports and public disclosures of information regarding the size, investment style, borrowing, and performance of the funds under management;
• a reevaluation of disclosure and suitability standards to avoid a false impression of lower investment risk created by registration and regulation;
• capital, liquidity, and risk management standards; and
• jurisdictional authority based on the primary business location of the manager of such funds, regardless of legal domicile.

The report focuses on the safety and soundness of financial regulation to minimize systemic risk. Because the recommendation concerns prudential oversight, it appears that regulation of hedge fund managers under the Investment Advisers Act of 1940, which does not include a prudential oversight component, would not accomplish the goals of the recommendation.

¹ Available here.