AIMA Welcomes Hedge Fund Registration Ruling

by Robert Lee, for LawAndTax-News.com, London

28 June 2006

The Alternative Investment Management Association (AIMA), the global trade association for the hedge fund industry, has given a cautious welcome to the decision by a U.S. court to strike down the Securities and Exchange Commission’s rule requiring hedge fund managers to register with it.

“The impact of the existing rule affected all hedge fund managers globally," observed Christopher Fawcett, Chairman of AIMA, commenting on the ruling by the U.S. Courts of Appeals for the D.C. Circuit,

Noting that the judgment "has far-reaching impact," Mr Fawcett continued:

"Whilst AIMA is generally in favour of efficient and appropriate regulations, such as those that exist in the UK and many other countries, AIMA has always been firmly against the SEC requirement for dual registration for non-US based managers, who are already effectively regulated in their own jurisdictions."

“However, the effects of the decision are not yet clear for those hedge fund managers who are already registered or those currently seeking registration. AIMA will seek to work with the SEC and its peers in other jurisdictions to arrive at a solution whereby the majority of its non-US members, who are fully regulated already, will be able to de-register from the SEC."

The registration rule achieves its goal by classifying the investors in a hedge fund as clients of the fund's adviser (manager), thereby causing many more fund managers to fall within existing fund registration rules, which apply when there are more than 14 clients.

However, the court stated that the Commission’s interpretation of the word 'client' "comes close to violating the plain language of the statute".

"At best it is counterintuitive to characterize the investors in a hedge fund as the 'clients' of the adviser," the judgment stated.

The SEC’s professional staff is now “to provide the Commission with a set of alternatives for consideration".

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