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Hedge Funds: The aftermath of the SEC staff report

Hedge Funds: The aftermath of the SEC staff report On September 29, 2003, the staff (“Staff”) of the Division of Investment Management of the U.S. Securities and Exchange Commission (the “SEC”) issued a report to the SEC entitled the “Implications of the Growth of Hedge Funds” (the “Report”). The Report recommends amending Rule 203(b)(3)‐1 of the Advisers Act to require a hedge fund manager to “look through” each existing client and count each of the hedge fund’s underlying beneficial owners as a “client” of the hedge fund manager for the purpose of determining whether an investment adviser has 15 or more clients and therefore must register under the U.S. Investment Advisers Act of 1940. Such a registration requirement effectively would increase the minimum investment requirement for a hedge fund. The Report does not necessarily support the argument that subjecting hedge funds to periodic examinations by the SEC will help in early detection of fraud and prevention of resulting investor losses. Despite the Staff’s intentions to identify distinctions between customary hedge fund vehicles and other types of investment funds, no clear hedge fund definition or standard was provided in the Report. As a result, there is a danger that the scope of new hedge fund regulations will be too broad http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Investment Compliance Emerald Publishing

Hedge Funds: The aftermath of the SEC staff report

Journal of Investment Compliance , Volume 4 (4): 6 – Oct 1, 2003

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Publisher
Emerald Publishing
Copyright
Copyright © 2004 Emerald Group Publishing Limited. All rights reserved.
ISSN
1528-5812
DOI
10.1108/15285810310813329
Publisher site
See Article on Publisher Site

Abstract

On September 29, 2003, the staff (“Staff”) of the Division of Investment Management of the U.S. Securities and Exchange Commission (the “SEC”) issued a report to the SEC entitled the “Implications of the Growth of Hedge Funds” (the “Report”). The Report recommends amending Rule 203(b)(3)‐1 of the Advisers Act to require a hedge fund manager to “look through” each existing client and count each of the hedge fund’s underlying beneficial owners as a “client” of the hedge fund manager for the purpose of determining whether an investment adviser has 15 or more clients and therefore must register under the U.S. Investment Advisers Act of 1940. Such a registration requirement effectively would increase the minimum investment requirement for a hedge fund. The Report does not necessarily support the argument that subjecting hedge funds to periodic examinations by the SEC will help in early detection of fraud and prevention of resulting investor losses. Despite the Staff’s intentions to identify distinctions between customary hedge fund vehicles and other types of investment funds, no clear hedge fund definition or standard was provided in the Report. As a result, there is a danger that the scope of new hedge fund regulations will be too broad

Journal

Journal of Investment ComplianceEmerald Publishing

Published: Oct 1, 2003

Keywords: Financial institutions; Investments; Investment funds; Investors; Investments

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