SEC Might Lean on States Due to Hedge Fund Rule
November 8, 2004
The Securities and Exchange Commission is reportedly considering shifting some of its responsibilities to the states, as the agency expects a surge of up to 15% in the number of investment advisors it oversees once the new hedge fund registration requirements become effective in February 2006.
The SEC voted 3-2 last month in favor of requiring hedge funds of more than $25 million in assets to register with the Commission in order to allow it to collect more information on the growing investment product as well as have examination authority in that industry. One of the arguments against regulation of the product is that it would stretch the resources of an already overextended SEC staff.
Paul Roye, the director of the SEC's division of investment management, recently said that the Commission estimates that 40% of hedge funds advisors are already voluntarily registered with the Commission, but that under the new rules, 8% to 15% more could come under the SEC's jurisdiction. Roye said the Commission anticipates being able to handle an increase within that estimated range, but anything greater and it has the authority to send some of the workload to the states if necessary. The uncertainty, however, comes from the fact that the information available about the hedge fund industry to date is sketchy and estimates are not necessarily reliable.