New HF qualified investor rules... 88% less households now qualify

SEC: 88% Less Would Make Hedge Fund Cut
by Christopher Glynn, Reporter December 14, 2006


The number of households able to invest in hedge funds would be reduced by 88% should a proposed change to the accredited investor standard take effect, according to the SEC.

Commissioner Paul Atkins said the SEC conducted research that showed just 1.29% of households in the country would meet the proposed criteria for hedge fund investing.

The SEC made a proposal Wednesday that raised the minimum net worth needed to be a hedge fund investor—known as the accredited investor standard—from $1 million to $2.5 million. The five-member SEC will next put the proposal, passed in a unanimous vote, out for a 60-day public comment period.

The hedge fund industry has grown to its current size—$1.786 trillion according to the HFN Asset Flow Report—via expanding from its original investor base of rich people and institutional clientele to include the more mainstream investor.

“[A $2.5 million accredited investor standard] is a big hurdle for a lot of people,” said Ricardo Davidovich, a partner at Tannenbuam Helpern Syracuse & Hirschtritt, a law firm with a sizeable hedge fund practice.

Robert Leonard, head of the New York hedge fund practice of law firm Bingham McCutchen, concurred, adding that the proposed increase would eliminate a lot of people who would otherwise seek to invest in the asset class.

 

good..hedge funds have too many assets now anyway. They encourage too much speculation. Which leads to asset bubbles and an unbalanced economy.

 

new start ups will be severely limited, thats a good thing, if one doesnt have the pedigree for running a HF, he shouldnt.

 

What "pedigree" would that be?

 

I'm in the middle and would be shut out. None of their business interfering with private investment partnerships in the first place.

Traveler

 

Try Australian hegefunds, $1,000 aus minimum investment.

http://www.economist.com/finance/displaystory.cfm?story_id=8428936

Australian hedge funds
Big hitters

Dec 13th 2006 | SYDNEY
From The Economist print edition
What happens when small investors play in the big leagues

AS A nation, Australians tend to get more excited at the prospect of slugging a ball around a cricket pitch than playing in the big leagues of international finance. But that does not mean they don't like to bat aggressively as investors, too. Unlike America and Europe, where regulators have shielded small investors from exotic investments, such as hedge funds, Australia allows its citizens to hold them as freely as it does mutual funds. So far this freedom has helped the local hedge-fund industry, without hurting the punters.

According to the Reserve Bank of Australia (RBA), the central bank, one of the most powerful forces behind the growth of hedge funds is their popularity among individuals, including ordinary folk with as little as A$1,000 ($785) to invest. In much of the rest of the world, access to hedge funds is usually restricted to the rich and to institutional investors.

But in Australia individual investors account for two-thirds of the A$60 billion invested in hedge funds, compared with just 44% globally. “In part, this high share reflects the regulatory regime, which does not limit retail access to hedge funds,” the RBA writes. Around 77 of the 200 hedge funds sold in Australia offer their products to the general public, sometimes over the internet, without officials batting an eyelid. “We sell loads of them,” says Ron Hodge, of InvestSMART, an online business that offers investments.

Australian hedge funds are no different from those elsewhere; they can involve borrowing, short-selling, and illiquid securities. Generally, they claim to safeguard investments even if markets fall, and the most popular strategy is one that bets on falling as well as rising share prices, or so-called long/short funds. Mutual funds, by comparison, simply buy assets in the expectation that prices will rise. Registration is mandatory, but there is no difference between the processes for hedge funds and mutual funds. The legal principle is that disclosure of important information, such as risks and fees, in sales documents, is enough to protect the public.

Financial advisers are often pushy in promoting hedge funds, which adds to the already high fees charged by the managers themselves. Typically, a financial adviser can collect up to an extra 1% of a client's assets each year. Yet more fees are paid to funds of hedge funds, which invest in a range of single-manager hedge funds rather than in the underlying securities.

In spite of the odd international blow-up, investment in Australian hedge funds has soared in recent years (see chart), and according to the RBA has even eclipsed the pace of growth in the global hedge-fund industry, where assets have reached around $1.5 trillion. Institutions are also stepping up their allocations to hedge funds; in 2005 almost one-third invested in hedge funds compared with less than 20% in 2003.

But recent returns, in the aggregate, are barely more impressive in Australia than anywhere else—especially after deducting fees. The RBA said hedge funds returned the same as local shares over the past five years, or 12% a year after fees, albeit with lower volatility.

At present there is little pressure to tighten up the industry. It is “fine as long as people go in with their eyes open,” says Frank Ashe, an associate professor of applied finance at Macquarie University. That attitude might change if something were to go horribly wrong with hedge funds. But Australia, unlike much of the rest of the world, is hoping for the best.

 

I saw this article a few weeks ago an wonder what sort of regulatory and paperwork hurdles an American citizen (with a tax resident work permit) would run into?

 

Good...if this goes through there will be more money flowing around for people to blow themselves...makes it easier for guys like us to take their money...those hedge funds only end up rewarding super-wealthy and their managers...would rather some good individuals had the option of robbing rich men blind, not just hedges.

 

Good old SEC - protecting the little guy from himself! Certainly a person with $2.5 million is so much more knowledgeable about money than a person with $1 million. Makes perfect sense to me. SEC can go to hell.

 

You don't like how the SEC governs with overly-complicated laws and then "protects" the little guy from making good returns? Yeah, on second thought...that doesn't make sense.

The SEC is probably just out to stop people from making good returns as it's important to have high turnover in the markets...the little guys have to get screwed somehow, and $1M is a good amount to screw someone out of.

Talk about bullshit and bureacracy...the SEC is loaded to the gills...their inability to find an acceptable cure for naked short selling non-delivery is one of the most blatant tumors I've ever seen in a governing body.