The hedge fund registration requirements debated extensively in the blawgosphere a few months back (see, e.g., here, here, and here) will take effect on Wednesday of next week. According to this article in the W$J, so far 530 hedge fund advisers have registered and a few hundred more are expected before Wednesday. Recent estimates put the number of hedge funds at around 8,000 (although the number may be on the decline). So why haven’t there been more registrations? Well, the rules do not require registration if customers cannot withdraw money from an adviser’s fund for two years or more or if the fund is not taking new investors. Hence, a number of advisers have increased the lockup period for their funds to two years and others have closed their funds to new investors. Additionally, some hedge funds advisers have previously registered or are waiting to register pending the outcome of litigation challenging the rules (see this article).
The SEC’s reasons for adopting the new rules include the incredible growth of hedge fund assets, the fact that some hedge funds have expanded their marketing to attract retail investors, the gradual and detectable decline in investment minimums, and fraud deterrence. The SEC believes that fraudsters are attracted to the hedge fund industry specifically due to the lack of oversight. Likewise, the SEC hopes that similar to tax audits the prospect of random compliance examinations will serve to deter fraud. You can quibble with whether these reasons warrant additional regulation and whether adviser registration is the right answer (and many have). But if the SEC truly believes additional regulation is warranted and adviser registration is the right answer, why did they draft rules that appear to result in less than 25% of hedge fund advisers registering?
For a brief overview of the new rules (put together by my research assistant, Ron Taylor), see below the fold. Read the rest of this entry »

Christine
Prof. B. writes with pronounced skepticism of and hostility to Hamas’ recent Palestinian parliamentary victory