SEC: Leverage Counts In Registration Threshold

Sep 30 2011 | 11:17am ET

Hedge fund managers with less than $150 million may not be able to breathe easy after all when it comes to Securities and Exchange Commission registration.

The agency plans to require all firms with $150 million in "regulatory assets" to register. Regulatory assets include leverage, meaning that firms that have raised a fraction of the $150 million threshold may have to register after all.

The SEC also plans to use regulatory assets to determine which firms fall under new, more extensive reporting requirements. Firms with more than $1 billion in regulatory assets will have to file detailed reports quarterly—within 15 days of a quarter's end—rather than annually, including information such as risk of loss, market impact and counterparties.

For some hedge funds investing in illiquid assets, meeting those requirements will be "next to impossible," Rothstein Kass's Andrew de Montille told The Wall Street Journal. The SEC said it is considering those concerns and others as it draws up its Form PF proposal.

"Using gross asset value would subject many mid-sized hedge funds to new regulatory and reporting requirements, which would increase marginal costs," Todd Groome of the Alternative Investment Management Association said. The SEC said it expects total costs for the industry to come into compliance with the new rules to be between $31 million and $57 million.

The agency also estimates that between 690 and 1,260 hedge fund firms not already registered will have to do so under its proposals.


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