Hedge fund managers slow in meeting SEC registration rule

Hedge fund managers are taking their time in registering with the SEC.

With the practical registration deadline three months away, just more than half of the 50 largest hedge funds have yet to file Form ADV, according to a search by Pensions & Investments of the Securities and Exchange Commission's Investment Advisor Public Disclosure website.

Among the unregistered are some the hedge fund world's largest players, including GLG Partners LP, London; Och-Ziff Capital Management Group, New York; Citadel Investment Group Inc., Chicago; and Vega Asset Management (USA) LLC, New York.

Vega will be registering in the fall, said Jennifer Lowney, a spokeswoman. A spokeswoman for Och-Ziff, who did not identify herself, said the firm never talks to the press. Neither Scott Rafferty, managing director-investor relations at Citadel, nor a spokeswoman for GLG Partners, who asked not to be identified, responded to requests for comment.

All of these large firms must register under new regulations that require all hedge fund managers with more than 14 U.S. clients and $30 million under management to file ADVs and other disclosure documents and to meet specific compliance and communication requirements by Feb. 1. The only hedge funds exempt from registration are those with a minimum two-year lockup period. Sources said that despite a lot of talk, they expect few if any hedge fund managers to increase the length of their lockups to avoid registration.

Preliminary paperwork must be filed 45 days before the Feb. 1 deadline, or Dec. 15, and attorney Lindi L. Beaudreault said hedge fund managers would be well-advised to file their paperwork by Dec. 1 because of holiday office closures at the SEC later in the month. Ms. Beaudreault is a partner at the Washington-based law firm of LeClair Ryan.

Depending on whose data you're looking at, between 40% and 50% of hedge fund managers have electronically filed Form ADV to date.

About 40% (1,277) of the hedge fund managers tracked by AltVest at the end of August are registered with the SEC, according to a quick search of the 3,134 companies in the online data base. AltVest is a service of Investor Force Inc., Wayne, Pa.

About 50% of the approximately 5,300 hedge funds in the database of Van Hedge Fund Advisors International LLC were registered at the end of July, said George Van, chairman of the Nashville, Tenn., hedge fund-of-funds manager.

John Nester, an SEC spokesman, said the agency doesn't tally the number of hedge fund manager registrations and declined to comment about the pace of registration.

Some of the world's largest hedge funds have already registered, among them Farallon Capital Management LLC, San Francisco; Bridgewater Associates Inc., Westport, Conn.; Goldman Sachs Asset Management, New York; Caxton Associates LLC, New York; and D.E. Shaw & Co. LLC, New York.

Fund managers that have already registered probably did so in response to pressure from an increasingly institutional clientele, said John Dyment, global head of the hedge fund capital group of Deutsche Bank Securities Inc., New York. "Most established hedge funds already are compliant (with the SEC regulations), because they have been raising institutional capital and those clients require a higher standard of operational processes, such as back office, communications, valuation," said Mr. Dyment.

Attorney Michael Tannenbaum agreed, noting the market shift to a more institutional focus by hedge funds has resulted in increased due diligence and a demand for the perceived security of SEC registration by pension funds and other entities. Mr. Tannenbaum is a partner at Tannenbaum Helpern Syracuse & Hirschtritt LLP, New York.

Other attorneys said the bulk of their clients must register with the SEC and most are well into the process of devising a compliance manual, naming a compliance officer and other requirements of the new regulations. But most firms will not register until they have to, and that's smart, said hedge fund lawyers.

"There is no premium to registering early," said Roger G. Joseph, partner and investment management practice leader, Bingham McCutchen LLP, Boston. Instead, Mr. Joseph said, "It is probably wiser to be as prepared as possible."

Hedge fund attorney Cary Meer agreed: "It's not enough just to prepare compliance documents. You need to make sure they work well and get the kinks out." Ms. Meer added: "You also need to make sure that your offering documents are consistent with the Investment Advisers Act and, if not, determine whether investor approval is required to change them." Ms. Meer is a partner at Kirkpatrick & Lockhart Nicholson Graham LLP, Washington.

But getting themselves registered and the compliance procedures into place is the easy part for hedge fund companies, said attorneys.

"Filing the ADV will not be a problem. The big question is what will happen (when) SEC examination staff begin to look at the filings and follow up with company visits, especially because hedge funds are so much more complex, organizationally, than the kinds of money managers the SEC is used to examining," said Ms. Beaudreault of LeClair Ryan.