Sec registered hedge funds
SEC Registered hedge funds.
nvestment manager or general partner of a Hedge Fund should register with the Securities & Exchange Commission (SEC) as Investment Adviser. The SEC, in a decision on 26.10.2004, passed rules that will require managers of Hedge Funds with assets of $25 million or over and having 15 or more investors to register as Investment Advisers with the SEC.
This regulation affects and amends the Investment Adviser Act rule 203(b) and will take effect from Feb, 2006. The new rule 203(b) (3)-2 will ‘look through’ to the investors in a private fund {a fund that relies on exemptions from registration provided by either 3(c) or 3(c) (7) of the Investment Company Act}. Initially, the Hedge Fund itself was considered ‘the client’ of the adviser, which afforded the adviser an exemption from registration where there were less than 15 clients and the adviser did not hold itself out to the public as an investment adviser. SEC may also periodically inspect the Hedge Fund advisers. Funds with less than $25 million will not be required to register but will be subject to state laws and applicable rules.
Each state has its own registration requirements which are also interpreted in conjunction with the National Securities Market Improvement Act of 1996 and other Federal statutes and rules. If the investment adviser services a particular kind of defined clientele and has less than a certain number of clients within a 12-month period and does not hold out to the public as an “Investment Adviser” – the advisor may be exempt from that state’s registration requirements. However, in each instance, it is important to review the law of the state for compliance. The registration requirement of a state depends on the number of clients there and also on whether the adviser is located in that state or not. Since the investment manager or adviser of the Hedge Fund has as its client, the Hedge Fund itself, it does not seem appropriate for it to register in the various states where the fund investors are located.
In order to form a Hedge Fund, one has to prepare and file Form-D with the SEC as well as comply with the filing requirements of the states where the investors are located. According to SEC regulations, “Selling away (un-monitored sales) is a serious violation and rule 3040 is designed not only to protect the investors alone, but also to protect the securities firms from exposure to loss and litigation in connection with sales made by persons associated with them”.
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