ICI Supports Additional Protections for Hedge Fund Investors

Washington, DC, May 2, 2003 - The Institute supports a recent SEC initiative to examine the regulatory framework governing hedge funds. In a recent statement, the Institute stresses the importance of keeping unregistered hedge funds distinct from registered funds in order to avoid confusion and situations in which less sophisticated investors invest in funds that are not subject to the protections of the Investment Company Act.

The Institute's statement was submitted in response to an SEC request for comment on topics to be discussed at a May 14-15 roundtable on hedge funds.

The Institute's statement emphasizes the importance of maintaining and enforcing the "public offering" prohibition that is a key aspect of the exemptions that relieve unregistered hedge funds from regulation under the Investment Company Act.

The Institute urges the SEC to focus on whether certain structures are being improperly used as conduits for ineligible persons to invest in hedge funds. The Institute notes that even registered funds of hedge funds are not appropriate for most retail investors, and recommends strict regulation of sales practices in this area, including requiring careful attention to suitability standards.

Finally, the Institute recommends that hedge fund advisers generally be required to register under the Investment Advisers Act of 1940. This step would entail minimal costs and burdens but would offer significant public benefits, such as providing the SEC with inspection authority to help ensure oversight of hedge fund practices.