Hedge funds and private investment pools are expected to roll out marketing efforts aimed at employer-directed defined contribution plans, following a recent SEC no-action letter.
The letter was in response to an inquiry by Standish, Ayer & Wood; it offers hedge funds and private investment partnerships a way to preserve their 401(k) plan business without having to register as mutual funds, notes Thomas S. Harman, partner in the Washington law firm of Fried, Frank, Harris, Shriver & Jacobson.
Under the letter, the underlying funds need not register as mutual funds if the private investment pools are identified to participants only as generic investment options, and plan fiduciaries control the money flowing into the generic options. Hedge funds in 401(k) plans must register as mutual funds only if participants direct the investments. What's more, such private investment pools cannot hold more than 50% of the plan's money flowing into the generic option, the SEC letter noted.
Employers are most likely to use such hedge funds or private investments in lifestyle funds in their retirement plans, said Thomas Z. Reicher, partner with the law firm of Day, Berry & Howard.
