Connecticut Considers Stricter Hedge Fund Regulation

Feb 23 2009 | 12:33am ET

Connecticut’s lasseiz-faire attitude towards regulation has made it one of the largest hedge fund centers in the world. But amidst the financial crisis and calls for greater oversight of the sector from around the world, the Nutmeg State may be preparing to give the industry the cold shoulder.

State lawmakers have proposed a trio of bills that would rein in hedge funds, from upping the requirements to invest in hedge funds to forcing changes in management strategy. Bills requiring hedge funds to register with the Securities and Exchange Commission have been introduced in Congress, but the Connecticut effort would go further.

“We’ve seen some holes in the system,” state Sen. Bob Duff, who chairs the banking committee, told the Hartford Business Journal. “The industry is aware that there needs to be additional transparency.”

Among the bills’ proposals are requirements for hedge funds to get a state license, independent financial audits, fee disclosures and changes in management or management strategy, as well as barring individual investors with less than $2.5 million in assets, or institutions with less than $5 million, from investing in hedge funds.

Opponents of the legislation suggest that it will force the hundreds of hedge funds in Connecticut to leave the state, possibly for nearby New York. But the Empire State has proposed such hedge fund-unfriendly legislation as higher taxes for alternative investments managers, and Duff says he is aware lawmakers need to be cautious.

“We don’t want to make it difficult for them to do business here,” he said.

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