SEC Proposal Would Require Hedge Fund Advisers to Register

Washington, DC, July 28, 2004 - The SEC recently voted three to two to propose a new rule and rule amendments that would require advisers to certain hedge funds to register under the Advisers Act.

Background
The SEC cited the recent growth in the hedge fund market as a factor in proposing the new rule and rule amendments. According to the SEC, registration of hedge fund advisers would permit the SEC to:

collect and provide to the public basic information about hedge funds and hedge fund advisers;
examine hedge fund advisers to identify compliance problems early, identify practices that may be harmful to investors, and deter unlawful conduct;
screen individuals associated with an adviser;
require all hedge fund advisers to adopt basic compliance controls to prevent violation of the Advisers Act and to designate a chief compliance officer; and
require all direct investors in hedge funds that charge performance fees to meet minimum standards of Rule 205-3 under the Advisers Act.

Under the proposed rule, hedge fund advisers would be subject to the entirety of the Advisers Act. Comments on the proposed rule and rule amendments are due to the SEC by September 15, 2004.

ICI Position
In a recent statement, ICI President Paul Schott Stevens commended the SEC for its action, saying “[R]egistration of hedge fund advisers would provide the Commission with basic information about the hedge fund industry that the Commission simply does not have today and make possible some degree of oversight of all hedge fund advisers.”