A Greenwich Associates news release said its recent study found that one in five hedge funds contacted indicated they would deregister with regulators. However, a larger proportion of hedge funds said they plan to retain new compliance processes, practices and staffing put in place to meet registration requirements. Almost 70% of the hedge funds surveyed were registered with the SEC.
More than a third of hedge funds surveyed by Greenwich Associates said that to comply with the original SEC registration requirement, they have already expanded staffing, largely in their compliance departments.
For hedge fund managers, the cost of registration and compliance has been considerable: three-quarters of the hedge funds participating in the survey said changes in regulation have increased their costs.
However, Greenwich researchers asserted in the announcement that the reforms were steps that many funds were considering anyway as they evolved into more complex firms actively seeking institutional assets.
The best example: the registration label itself. Hedge funds noted that registration served as a useful marketing tool and that “flip-flopping” on registration would send the wrong message to clients. Hedge funds – especially larger funds that would presumably be more focused on attracting institutional assets – expressed similar views about compliance and operational best practices and staffing.
The SEC’s hedge fund registration requirement took effect in February 2006 (See SEC Imposes Hedge Fund Registration ). In June, a federal appellate court ruling overturned the policy (See Court Throws out Hedge Fund Registration Rule ).
“Regardless of the court ruling and the SEC’s decision to forgo its appeal, hedge funds are evolving and creating structures and business models very much in line with those envisioned by the SEC,” says Greenwich Associates consultant Tim Sangston, in the news release. “They are keeping the compliance officers they hired during the registration process, they’re making sure they conform to best practices, and many are going to retain their registered status.”
Greenwich Associates surveyed 47 hedge funds between July 18 and August 3, 2006 – before the SEC’s August 7 announcement that it would not appeal the court ruling ending the registration requirement (See SEC Will Not Appeal Ruling on Hedge Fund Registration ). More than three-quarters of respondents were US hedge funds.