Hedge fundswith regulatory assets under management in excess of $100 million are required to register with the U.S. Securities and Exchange Commission (SEC). Advisors who have regulatory capital under management less than $150 million and qualify for the private fund advisor exemption do not have to register with the SEC.
Even so, hedge funds remain far more opaque and more lightly regulated than traditional investment vehicles that often accumulate ordinary investor money such as mutual funds, exchange-traded funds (ETFs), and financial advisory firms.
Key Takeaways
- Hedge funds are typically required to register with the SEC if they maintain investor assets of more than $100 million.
- If the entirety of assets managed are from private accredited investors then that limit is raised to $150 million.
- New legislation pertaining to the regulation and registration of hedge funds was enacted through the 2010 Dodd-Frank Act and implemented in the Investment Advisers Act of 1940.
Hedge FundRegistration
After 2010, theDodd-Frank Act's changes to the Investment Advisers Act of 1940raised the lower limitfor hedge fund advisors to register with the SEC from $25 million to $100 million. This change was implemented in Section 203(A)(II) of the Investment Advisers Act of 1940.
Dodd-Frank legislation also defined a new category of advisors, called mid-sized advisors, whohave regulatoryassets under managementbetween $25 million and $100 million. An advisor ofa mid-sized hedge fund does not have to register with the SEC but should be registered with the state where his principal office is located. If an advisor ofa mid-sized hedge fund does not have adequate state regulation then that advisor would be required to register with the SEC.
The registration process began its implementation in 2012, the same year the SEC created a special unit to oversee the industry. Under the new legislation, hedge funds are also required to report information covering their size, services offered, investors, and employees, as well as potentialconflicts of interest to their clients in appropriately communicated disclosures.
Private Fund Advisor Exemption
Hedge funds are not immediately accessible to the majority of investors. Instead, hedge funds are geared toward accredited high net-worth investors and institutional entities, as these types of investors need less SEC oversight than others. Anaccredited investoris a person or a business entity with a defined high net worth who is allowed to deal in securities that may not be registered with financial authorities.
Prior to Dodd-Frank, general partners in a hedge fund had exempted themselves from the Investment Advisers Act of 1940, which sought to protect investors by monitoring the professionals who offer advice on investment matters. These hedge funds (primarily family offices) were able to be excluded from the legislation by restricting their number of investors and meeting other requirements. However, Title IV of Dodd-Frank erased the exemptions that had allowed anyinvestment advisorwith less than 15 clients to avoid registration with theSEC.
Nevertheless, a hedge fund advisor may avoid registration with the SEC if they qualify for the private fund advisor exemption legislated in the Dodd-Frank Act and communicated in Section 203(m)(1) of the Investment Advisers Act of 1940. This exemption is applicable to an advisor of a hedge fund who has principal offices located in the United States, has regulatory assets under management below $150 million, and only hasprivate fundclients. If a hedge fund advisor has at least one non-private fund client, he is not eligible for the private fund advisor exemption. Also, all assets count towards the $150 million threshold, including assets managed outside of the United States.
FAQs
"Like mutual funds, hedge funds pool investors' money and invest those funds in financial instruments in an effort to make a positive return. However, unlike mutual funds, hedge funds are not registered with the SEC.
Are hedge funds registered with SEC? ›
Hedge funds are not subject to some of the regulations that are designed to protect investors. Depending on the amount of assets in the hedge funds advised by a manager, some hedge fund managers may not be required to register or to file public reports with the SEC.
Are all hedge funds to be registered? ›
There are different types of hedge funds depending on the securities they invest in and the kind of strategies used to manage them. Hedge funds in India do not need to be necessarily registered with Securities and Exchange Board of India (SEBI), our markets regulator or disclose their NAVs at the end of the day.
Are funds registered with the SEC? ›
Although a private equity fund may be advised by an adviser that is registered with the SEC, private equity funds themselves are not registered with the SEC. As a result, private equity funds are not subject to regular public disclosure requirements.
Are hedge funds regulated in the US? ›
Hedge fund regulation varies widely around the world; in several key jurisdictions (including the United States) such funds are relatively lightly regulated.
Do hedge funds have to report to SEC? ›
The US Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have jointly approved new regulations which will require hedge funds to confidentially disclose more information about their investment strategies to watchdogs on a quarterly basis, including on investments, borrowing and ...
Who do hedge funds register with? ›
To register the hedge fund with the SEC, complete SEC Form D in each state in which the hedge fund will be offered. This offering will name the key partners in the firm, as well as identify large investors and the fund's primary investment strategy and investment approach.
Are hedge funds registered under the Securities Act of 1933? ›
The offer and sale of interests in a hedge fund are not registered under federal or state securities laws, and a prospectus does not need to be delivered to potential investors.
Do hedge funds need to be licensed? ›
Hedge funds will need to be registered with the SEC if they have over $150 million in managed assets via accredited private fund investors. If there are investors in the fund that don't qualify as accredited private investors, that threshold drops to $100 million.
Are hedge funds exempt from registration? ›
Hedge funds and similar pooled investment vehicles fall within the definition of an “investment company” and therefore are required to register as an investment company unless they qualify for an exemption.
Visit FINRA Market Data. Click on the link that says Company Information in the far left column to search for your investment. If you find the ETF, ETN or closed-end fund on Market Data, it is registered with the SEC.
What is not registered with the SEC? ›
Unregistered shares, also known as restricted stock, are securities that are not registered with the Securities and Exchange Commission (SEC).
Do all securities have to be registered with the SEC? ›
Under the federal Securities Act of 1933 (Securities Act), all offers and sales of securities must be either (1) registered with the SEC or (2) conducted in compliance with an exemption from registration.
Who regulates hedge funds in the USA? ›
Hedge funds must file Form PF if they have investment advisors that are registered or are required to register with the Securities and Exchange Commission (SEC), manage one or more private funds, and have at least $150 million in private fund assets under management.
How do I register a hedge fund in USA? ›
Register With Regulatory Agencies
This entails passing the Series 65 exam to qualify as registered investment advisors (RIAs). Once you've obtained RIA registration, you'll still need to register the hedge fund itself. To do that, you'll need to complete SEC Form D for each state where you plan to offer the fund.
Are hedge funds highly regulated? ›
Hedge funds are not regulated as heavily as mutual funds and generally have more leeway than mutual funds to pursue investments and strategies that may increase the risk of investment losses.
When must a hedge fund register with the SEC? ›
$100 Million Threshold
In general, an investment adviser with less than $100 million in “regulatory assets under management” (RAUM) must register with the relevant state authority in each state in which the adviser operates. Investment advisers with more than $100 million must register with the SEC.
What is the new SEC rule on hedge funds? ›
US regulators will begin requiring hedge funds to confidentially share more information about their investment strategies. New rules approved on Thursday will require firms to provide more details to watchdogs, including on investments, borrowing and counter-party exposure.
Are hedge funds registered under the securities Act of 1933? ›
The offer and sale of interests in a hedge fund are not registered under federal or state securities laws, and a prospectus does not need to be delivered to potential investors.
