SEC moves to tighten hedge fund investor standard

Hedge funds, once the exclusive province of wealthy people, have become more easily accessible to smaller investors. R

By ROBERT SCHROEDER, MARKETWATCH
MarketWatch: In-depth global business coverage Taking a new tack in restricting hedge funds, securities regulators this week will consider requiring individual investors to have a bigger wallet before buying into the lightly regulated funds. At a public meeting on Monday, the Securities and Exchange Commission will weigh revising the criteria as a way of ensuring that hedge-fund investors are able to withstand the higher risk associated with hedge funds. Hedge funds, once the exclusive province of wealthy people, have become more easily accessible to smaller investors. Regulators, however, have been concerned that the investment vehicles pose risks to smaller investors because the funds are lightly regulated. Michael Tannenbaum, a lawyer with Tannenbaum Helpern Syracuse and Hirschtritt, said he expects commissioners to raise the net-worth standard for investing in hedge funds to between $1.5 million and $2m., vs. $1m. today. Regulators also could tighten rules by increasing the minimum annual income of investors from its current threshold of $200,000. "It has the effect of reducing the pool of eligible investors," Tannenbaum said in an interview. Increasing the minimum net worth, he added, would hurt prospective fund managers who are just starting out. Earlier this year, SEC Chairman Christopher Cox said such rules would be necessary following a federal appeals court decision that threw out existing hedge-fund oversight rules the agency was using. The SEC has begun by requiring hedge funds to register as investment advisers and provide regulators with basic information about themselves. At Monday's meeting, the agency's five commissioners also will decide on proposing a new rule that would prohibit advisers from making false or misleading statements to investors in pooled investment vehicles they manage, including hedge funds. Commissioners also will consider proposing amendments to the short-sale price test and the "short exempt" marking requirement. Additionally, the panel will vote on approving the budget of the Public Company Accounting Oversight Board and will consider the annual accounting-support fees under the Sarbanes-Oxley Act. The agency will vote as well on whether to propose amendments to a rule that would protect companies from manipulation that can reduce their proceeds from stock offerings. MarketWatch: In-depth global business coverage