Many Hedge Funds Extending Lock-up Periods To Avoid SEC Registration

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

28 September 2005

According to an Investment News report published on Monday, many hedge fund managers are extending their funds' lockup periods in order to dodge SEC registration rules set to come into force in February.

Under the new regulations, hedge funds which "lock up" their investors' assets for more than two years will be exempted from the requirement to register as investment advisers.

Speaking with regard to the trend, SEC Commissioner, Cynthia Glassman recently observed that:

"It was totally predictable that hedge funds would start using longer lock-up periods. I'm not at all surprised; I said this was going to happen."

Some observers have suggested that such moves will merely serve to increase the Securities and Exchange Commission's scrutiny of the industry.

Speaking to Investment News, Jeff Heely, chief executive of Heely Capital, a family-based business which invests in hedge funds, confirmed that this was likely to be the case:

"If you want to be in this business, you should be prepared to operate like a business. The SEC says they want to see what you're doing, and for hedge funds to try and be clever only asks for more regulations," he predicted.

However, James R. Hedges IV, president of Florida-based LJH Global Investments, disagreed that the intention was always to dodge SEC scrutiny, suggesting that some managers "are trying to steer clear of what they perceive to be an unnecessary registration process".

He went on to add:

"Some of the best hedge funds out there have longer lock-ups. As an investor, I'm interested in funds that have a more stable asset base and a more stable investor base."

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