Proposed SEC Hedge Fund Rules May Affect Non-US Funds

by Philip Morton, Investors Offshore.com

22 October 2003

Investment experts have warned that the US Securities and Exchange Commission's (SEC) plans to increase the regulation of hedge funds could have an impact on non-US mainstream funds.

Speaking to the Financial Times at the weekend, Julie Patterson, head of regulation at the UK-based Investment Management Association (IMA) observed that:

"This report could potentially impact every fund in the world. It seems like US myopia to me."

Under the terms of the SEC proposals, hedge funds operating in the United States would be forced to register with the US regulator, and to provide basic information in order to facilitate audits, if necessary.

However, the SEC would also ask the managers of non-US funds to 'see through' their customers to the underlying investor base, and if more than 15 people within a client fund are from the United States, to register with it.

Observers have argued that funds in other countries are already subject to their own national rules, creating the potential for confusion and reporting overlap.

However, partner in the Investment Management Group at Linklaters, Bill Hobbs told the FT that:

"This is an example of the long-arm reach of the SEC. Their justification would be that if US investors are investing in your fund, they have the right to regulate you."

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