SEC Publishes Final Registration Rules For Hedge Funds

by Carla Johnson, Investors Offshore.com

07 December 2004

The US Securities and Exchange Commission has published its final draft of new rules that will require most hedge funds managers to register with the financial market regulator as investment advisors.

Under the existing regulatory framework, each hedge fund to which an advisor provided investment advice was counted as one client, meaning that until now, hedge funds were able to trade outside of the remit of the relevant legislation.

However, under the contentious changes approved by the SEC, fund managers must now look through each fund they manage and count individual investors as clients. This means that any advisor with more that 14 clients in the last twelve months and at least $30 million in assets under management will be required to register as an investment advisor.

The rules also extend to offshore advisors, who must look through each of the funds under management and count every investor who is a resident of the United States. If the fund has more than 14 US-based investors, then it will generally be required to register with the SEC.

The effective date for many of the provisions has been set for February 2005, and all hedge funds must be in compliance with the new rules by February 1, 2006.

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