SEC proposal leaves 'get out' for big funds

Wed Sep 1, 2004

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," named after...

ISSN: 2151-1845 / CDC10004H

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