Alt Investments
Loopholes Herald New US Hedge Fund Regime

Today sees the start of the new era in hedge funds regulation in the US. A long awaited and sometimes dreaded new era will begin for US hedg...
Today sees the start of the new era in hedge funds regulation in the US. A long awaited and sometimes dreaded new era will begin for US hedge funds.
As from now, most US hedge funds with more than $30 million in assets and 15 or more clients, will have to face periodic government audits, demonstrate good record keeping and stick to a raft of new procedures aimed at preventing fraud in the industry.
The cost of compliance is likely to be transferred to the hedge fund clients in the form of higher management fees.
The new rules should not directly affect the investment process at hedge funds, according to industry observers – it is the operational side which must be beefed up to cope with the new regime. Most of the firms affected are now thought to have structures and procedures in place so as not to fall foul of the new rules.
Some of the larger hedge funds are using a loophole in the regulations to completely side step the regime. Hedge funds are exempt from registering under the regime if they keep clients' money for 24 months or more.
For the hedge funds themselves this is an unenviable choice to make as potential investors may feel let down by some popular managers who turn their backs on potential clients who refuse their business when they are unwilling to leave their money with a fund for two years or more.
US managers Eton Park Capital, Lone Pine Capital and Citadel Investment Group, are thought to be among this group.