The SEC today, by a 3-2 vote, approved a proposal that would require hedge fund investment advisers to register with the agency. The proposal follows the main recommendations of a September 2003 report by the SEC's investment management division. The proposal exempts hedge funds with less than $25 million in assets under management and limits regulation of offshore funds that have U.S. investors.
Registration will permit the SEC to collect basic information about hedge funds and subject advisers to regular examinations, allowing the agency to identify compliance problems and fraud and limit the impact on investors, according to the SEC. Hedge fund advisers will be required to adopt basic compliance procedures and policies in line with securities rules, including the appointment of a compliance officer.
SEC Chairman William H. Donaldson noted that the SEC has brought 46 enforcement cases against hedge funds for defrauding investors of more than $1 billion. Additionally, another 40 hedge funds have been identified by SEC staff since last fall as being involved in mutual fund trading abuses.
The proposal now is open for a 60-day public comment period.
Commissioners Cynthia Glassman and Paul Atkins voted against the proposal. Ms. Glassman said investors would be better served if the SEC devoted its resources to "more effective regulation of mutual funds, the investment of choice for over 90 million Americans, as opposed to hedge funds, whose investors are limited to institutions and likely fewer than 1 million sophisticated high-net-worth individuals."