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Hedge Funds May Employ Loophole to Elude SEC

As a federally mandated registration deadline nears, many hedge fund managers are considering longer lock-up periods to elude the regulation, a recent report indicates.

Beginning next year, hedge funds with more than $30 million in assets and/or more than 15 clients must begin reporting more to the government by submitting audits, appointing a chief compliance officer and adopting a code of ethics.

But a little-known loophole may offer a way for thousands of hedge fund managers to continue their freewheeling ways. If they choose to keep investor assets for two years, they can skip the registration headache and all the paperwork and client costs that go along with it.