(This article appears courtesy of International Financial Law Review, sign up for a free trial on their site)
Only for the rich
The SEC was given a bloody nose in its efforts to regulate the booming hedge fund sector in 2006 when the US Court of Appeals for the District of Columbia Circuit struck down a rule that would have required most hedge fund advisers (those managing $30 million or more in assets and with 15 or more US clients) to register with the Commission under the Investment Advisers Act of 1940. By registering advisers, the SEC hoped to be better able to monitor their activities and to require them to have compliance programmes, codes of ethics and other safeguards.
Regardless of whether they supported the SEC proposal, many lawyers who advise hedge funds were surprised by the court's decision, believing that a reasonable interpretation of the statute would give the Commission the authority to require adviser registration. They accept, however, that the decision has set a precedent that makes it highly unlikely that any future attempt to impose such a rule would succeed.
But with hedge funds controlling more than $1.5 trillion in assets globally, and many taking highly leveraged positions, it is unlikely that the SEC will hold off from taking a more proactive stance in 2007.