Investors fear a stampede to longer lock-ups after
regulation is introduced
When the Securities & Exchange Commission finally
published its proposal to require hedge fund advisers to
register, many managers of the bigger funds sighed with relief.
Suddenly registration didn't seem so bad, not least because,
due to loopholes in the proposed rules, it may be possible to
avoid the issue altogether with a few changes to the terms
offered to investors.
The question now is how many of the larger firms will take
advantage of the get-out clause, which allows firms with a
two-year lock-up for their LP and those with fewer than 15
offshore investors to sidestep registration. Many investors are
worried that it will prompt a slew of firms to impose longer
lock-ups to avoid regulation.
When it was included in the proposal, no one imagined the
loophole that some cynics have dubbed the "Levitt exemption,"