Dodd-Frank Law Coaxes Hedge Funds into Regulatory Purview; States Expected to Carry a Large Part of the Load
The Dodd-Frank bill, signed into law on July 21, 2010, finally puts on the books a law meant to bring the vast majority of hedge funds under regulatory supervision. The law specifically requires “private fund advisers” to register, either with the SEC or their state of domicile.
Here’s roughly how the law works:
– Private Fund Advisers with between $25m and $100m in assets under management: must register with their state, unless exempt from state registration, or if the state does not call for examination of such advisers.
–Private Fund Advisers with over $100m in assets under management: must register with the SEC, unless they only advise private funds, in which case they can wait until they have over $150m in assets.
The key here to the effectiveness of the government’s efforts clearly lies in the states’ ability to provide oversight over the smaller advisers. To the extent a state’s law has gapping exemptions (as some of them do), smaller advisers will wind up not registering with either the state or the SEC. If we look at Hedge Fund Research (HFR) statistics for Q4 of 2008, we see that 53% of Firms have under $100m AUM; thus the importance of the state burden in this regulatory scheme is apparent.
Smaller hedge fund advisers must carefully evaluate their state law requirements to determine their registration requirements. Forth-coming rules from the SEC may also clarify some of the grey areas. The deadline for compliance with the registration requirements is within one year after the date of enactment.
The law can be viewed at http://docs.house.gov/rules/finserv/111_hr4173_finsrvcr.pdf
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