Hedge Funds Cast Around For Registration Get-Out Clause

by Glen Shapiro, LawAndTax-News.com, New York

11 February 2005

According to a report from Institutional Investor this week, hedge funds facing the prospect of registering with the Securities and Exchange Commission by next February are looking around for a way out.

The news service revealed that under Section 3 of the 1940 Investment Company Act, hedge funds can choose to implement a two-year lockup period in order to dodge the registration requirement.

In addition, there are reportedly 12 other possible exemptions contained within the legislation, including Section 3-c3, which exempts insurance company pooled funds and banks from SEC regulation.

Although existing hedge funds are unlikely to be able to transform themselves into insurance firms, observers have suggested that large financial groups which already own a bank or insurance firm could establish a trust fund which would function in the same way as a hedge fund.

Meanwhile, it also emerged this week that the Commodity Futures Trading Commission (CFTC) is in talks with the SEC over exempting those hedge funds which are already registered with the former body from the new requirement to register with the SEC.

"We have continued to talk with senior SEC staff about this," general counsel for the CFTC, Pat McCarthy reportedly told a recent meeting of the Managed Funds Association, continuing:

"The question will be the scope of the exemption."

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