The SEC has posted new hedge fund regulations on its website, www.sec.gov, amending the 1940 Investment Advisers Act.
The new rules are not greatly changed from the draft version released this summer. Hedge fund management companies may not count a pooled fund as a single client and must adopt compliance policies, implement a compliance infrastructure, designate a chief compliance officer and provide certain disclosure documents. However, hedge fund managers can market investment performance from periods prior to SEC registration, even if the firm does not have documentation to back up those numbers. Also, the criterion for accredited investors was raised to include those with a net worth of at least $1.5 million or an investment minimum of at least $750,000.
The only hedge fund management companies that are exempt from the requirements are those that qualify under the "private adviser exemption" (those that have fewer than 15 clients, do not hold themselves out to the public as an investment adviser, have a lock-up period shorter than two years, are not an adviser to a registered investment company and manage less than $25 million). All other hedge fund managers must register with the SEC by filing an ADV form and maintaining certain company records.
The SEC rejected public comment suggesting that registration would be duplicative for commodity pool operators, which are already registered with the Commodity Futures Trading Commission, and for managers of offshore hedge funds used by U.S. investors.
The final version of the regulations, effective Feb. 10, was approved by a 3-2 vote on Oct. 26 but was not released to the public until yesterday.
Paul F. Roye, director of the division of investment management, told a meeting of the Securities Industry Association on Tuesday that the SEC's intent is to regulate the investment advisers, not hedge funds themselves.