The Securities and Exchange Commission today finally issued its adopting release requiring the registration of most investment advisers to hedge funds. Release No. IA-2333 (Dec. 2, 2004). The adopting release is 160 pages long, including 55 pages defending the need for the rule changes and the SEC's authority to adopt them and a strongly-worded 31-page dissent by Commissioners Glassman and Atkins.
An obvious question is whether hedge fund managers that are not required to register with the SEC, because they have less than $30 million under management or because they have fewer than 15 clients even after applying the new rules, must register at the state level. Of course, this generally will be determined by state laws and regulations. However, Section 222(d) of the Investment Advisers Act of 1940 provides a national de minimis standard for state registration: a state may not require an adviser to register with its state securities authority unless the adviser has a place of business located within the state or has had, during the preceding 12-month period, at least six clients who are residents of that state. The SEC adopted rule changes to clarify that advisers and their supervised persons shall not apply the new "look-through" rules when counting clients to apply the national de minimis standard.
The SEC's adopting release is available online at
John M. Baker <JMB@...
Stradley, Ronon, Stevens & Young, LLP http://www.stradley.com
1220 19th Street, N.W., Suite 600, Washington, DC 20036
(202) 419-8413 Fax (202) 822-0140
FundLaw Listowner http://groups.yahoo.com/group/fundlaw
--- In FundLaw@yahoogroups.com, "Baker, John" <JMB@...> wrote:
> As expected, the Securities and Exchange Commission on October 26 voted 3 - 2 to adopt rule amendments that will require most hedge fund managers to register with the SEC as investment advisers. The effect of the rule changes is that a hedge fund manager will be required to register as an investment adviser with the SEC if it has at least fifteen non-insider clients after looking through to the investors in its hedge funds, and if it has at least $30 million in assets under management. The amendments have a compliance date of February 1, 2006. Although the final text of the rule amendments and adopting release are not yet available, I have prepared an Adviser Alert based on the discussion at the SEC meeting, and it can be accessed at
> This Adviser Alert is one of a series of Adviser Alerts and Fund Alerts provided by Stradley, Ronon, Stevens & Young, LLP. If you would like to receive Adviser Alerts and Fund Alerts automatically, send a request with your contact information to Maria Boncardo, mboncardo@... (mboncardo [at] stradley.com).
> John M. Baker <JMB@...>
> Stradley, Ronon, Stevens & Young, LLP http://www.stradley.com
> 1220 19th Street, N.W., Suite 600, Washington, DC 20036
> (202) 419-8413 Fax (202) 822-0140
> FundLaw Listowner http://groups.yahoo.com/group/fundlaw