Monthly Archives: August 2008

Hedge Fund IT Provider (press release)

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Richard Fleischman and Associates (RFA) Names Julian Croxall to New Client Consultancy Post

NEW YORK, NY – August 11, 2008

NEW YORK, NY – August 11, 2008 – Richard Fleischman & Associates (RFA), a leading provider of technology and IT services and the trusted technology advisor to more than 400 hedge funds and private equity firms, today announced that Julian Croxall has joined the company as the Director of Client Consulting.

In this newly created role, Mr. Croxall will direct the operation of a virtual CTO client consultancy in addition to developing new products and service offerings for RFA’s technology and business development teams. He will also focus on business processes and strategic development for RFA.

Mr. Croxall is an 18-year IT veteran specializing in banking and trading environments and has a proven track record managing multi-million dollar global technology programs.

“Julian is a great addition to the RFA team. He brings excellent technical credentials and strong people skills to his new role as Director of Client Consulting,” says Richard Fleischman, President of RFA. “Julian’s’ many accomplishments in the banking and trading environments – combined with a deep knowledge of institutional banking – will be a tremendous asset to the continued development of RFA’s technology initiatives.”

Most recently, he held a senior technology management position at Merrill Lynch M&A Integration in New York where he directed technology for three multi-billion dollar hedge fund startups and a fund administrator, as well as Merrill Lynch’s proprietary acquisitions, mergers, investments and divestitures.

Earlier in his career, Mr. Croxall held several technology management positions across Europe and North America at Credit Suisse First Boston and Morgan Stanley and founded two successful small businesses that provided technology services and application development to other industry sectors including telecoms, manufacturing, media and advertising.

“Julian is an accomplished industry veteran from Merrill Lynch who played a key role in the development of successful multi-billion dollar hedge funds. His industry knowledge and vast business experience will provide strategic guidance to our growing client base and reinforce RFA’s position as the vendor of choice for firms in the alternative asset space,” says Don Previti, Director of Business Development at RFA.

CFTC Announces Formation of Retail Foreign Currency Fraud Enforcement Task Force

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Washington, DC— The Commodity Futures Trading Commission (CFTC) has formed a special task force charged with investigating and litigating fraud in the off-exchange retail foreign currency (forex) market.

The creation of the task force within the Division of Enforcement comes in the wake of Congress’ passage in June 2008 of “The Food, Conservation, and Energy Act of 2008” that clarified and strengthened the CFTC’s jurisdiction over this market. The task force will focus on fraud in the retail forex market and will work cooperatively with other federal and state regulatory and criminal authorities.

“The formation of the CFTC’s new Forex Enforcement Task Force reaffirms our agency’s commitment to stopping unscrupulous individuals working in this space. Not only do forex fraudsters prey upon unsuspecting citizens, but their illegal activities taint the reputations of those working honestly in the futures industry,” said CFTC Commissioner Michael Dunn, head of the agency’s Forex Education and Outreach Task Force. “This announcement sends a clear signal that the CFTC is on the beat, and that our continued and increased cooperation with law enforcement authorities will help put these forex dealers where they belong – in jail.”

“Forex fraud impacts investors of all stripes,” CFTC Acting Director of Enforcement Stephen J. Obie said. “With the creation of the retail forex task force, the CFTC has committed the resources necessary to expand its efforts to identify and prosecute those who commit fraud in the retail forex market.”

Since enactment of the Commodity Futures Modernization Act in 2000, the CFTC has filed nearly 100 enforcement actions against firms and individuals selling illegal forex futures and option contracts. To date, the CFTC has obtained judgments in these enforcement actions for civil monetary penalties of approximately $560 million and restitution of investor losses totaling $450 million.

Question: can my firm have a “silent owner”

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Question: I am a manager registered as an investment adviser in [State]. Can I have a “silent owner” who solicits clients for the management company or the fund? Also, since the owner is only a “silent owner” who does not do any of the trading, will the “silent owner” need to be registered as an investment adviser representative and have to take the Series 65?

Answer: Maybe surprisingly, this is a question which comes up on a very regular basis. In many situations, the manager will have some friends with a great network of high net worth individuals and these friends think they will be able to help the manager raise assets. As noted in my previous article on the broker-dealer issues, there is a potential broker-dealer issue if the person will be compensated for helping to sell interests in a hedge fund. Additionally, there is a potential state investment adviser representative registration issue.

As mentioned in a previous aritcle, almost all of the state securities laws are based off of the Uniform Securities Act, which has a general definition of what constitutes an “investment adviser representative.” Generally, each “investment adviser representative” will need to be registered as such at the state level.

The definition form Uniform Securities Act (Last revised or Amended in 2005), Section 102(16) (emphasis added) provides:

“Investment adviser representative” means an individual employed by or associated with an investment adviser or federal covered investment adviser and who makes any recommendations or otherwise gives investment advice regarding securities, manages accounts or portfolios of clients, determines which recommendation or advice regarding securities should be given, provides investment advice or holds herself or himself out as providing investment advice, receives compensation to solicit, offer, or negotiate for the sale of or for selling investment advice, or supervises employees who perform any of the foregoing. The term does not include an individual who: (A) performs only clerical or ministerial acts; (B) is an agent whose performance of investment advice is solely incidental to the individual acting as an agent and who does not receive special compensation for investment advisory services; (C) is employed by or associated with a federal covered investment adviser, unless the individual has a “place of business” in this State as that term is defined by rule adopted under Section 203A of the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-3a) and is (i) an “investment adviser representative” as that term is defined by rule adopted under Section 203A of the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-3a); or (ii) not a “supervised person” as that term is defined in Section 202(a)(25) of the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-2(a)(25)); or (D) is excluded by rule adopted or order issued under this [Act].

http://www.uniformsecuritiesact.org/usa/DesktopDefault.aspx?tabindex=2&tabid=48

From the plain language of the statute (if adopted in substantially the same manner as above), a “silent owner” will generally fall within the definition of investment adviser representative. This means that the investment adviser representative will need to be registered as such with the state unless the state has an exemption from the registration provisions. While maybe contrary to what one would expect, it seems that some states may be willing to go along with an investment manager. I have heard of some states informally (over the phone) taking the position that when a “silent owner” merely tells people about the IA firm and does not involve himself further in the negotiation process, then such a “silent owner” would not be deemed to be an investment adviser representative. However, managers should consult with legal counsel if they would like to take this aggressive position. It is also highly recommended that before proceeding without registration, the IA firm should seek a no-action letter from the state on this topic. The no-action letter can be drafted by your attorney. There will probably be a filing fee at the state (around $100) in addition to any legal fees you may incur; generally answers can be received within 30 days.

A manager should also be aware that the firm can be fined if an employee acts in the capacity of an investment adviser representative without being registered. On February 4, 2008, the Kentucky Office of Financial Services levied a $54,668.53 fine against an investment advisor for failing to properly supervise the activities of an employee who was acting in the capacity of an investment adviser representative. Office of Financial Institutions v. Questar Capital Corp., Case No. 2008-AH-008, 2008 Ky. Sec. LEXIS 3 (Feb. 4, 2008). In this case, an unregistered employee of an investment fund was soliciting clients to a hedge fund. As a result of these referrals, the management company received compensation totaling $54,668.53. The Kentucky Office of Financial Institutions ruled that the investment advisor who oversaw the employee to be violation of KRS 292.330(1), and fined the fund $54,668.53 to disgorge its illicit profit. The investment adviser representative was to be put on heightened supervisory status and was also barred from receiving any compensation relating to advisory accounts until he was registered as an investment adviser representative.

Hedge fund seeder invests in ABL hedge fund

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FinAlternatives, an news source for hedge funds and private equity funds, is reporting that FRM Capital Advisors, a London based hedge fund seeding firm, is making an investment in an asset-based lending (ABL) hedge fund. FRM reportedly made a $60 million investment into Victory Park Capital, a Chicago-based firm.

As I noted earlier in a story on ABL hedge funds, this a hot area for investments right now. The central advantages of an ABL hedge fund is that (1) they are not generally going to be correlated to the general equity markets and (2) most ABL hedge funds have a monthly or quarterly distribution component. This distribution of earnings can be particularly attractive to certain investors seeking current income and non-correlation to the bond and equity markets.

ABL funds are particularly attractive right now because the credit markets are drying up. Small and mid-market companies, which rely on short term financing to fund business operations, are being squeezed by lack of liquidity. Many small ABL companies and hedge funds are looking to fill this gap in the market. Many of these companies and funds have been quite successful.

Question: hedge fund investor and qualification requirements

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Question: I wanted to inquire as to legalities for a new hedge fund formation. My question is can I get by the limit of 500 investors and qualification requirements. I mean is there another type of fund to start with same freedom and lack of regulation with breadth of trading types, but that can accept investors with net worth under $250,000…and more than 500 of them?

Answer: Let’s break down your question first:

“…can I get by the limit of 499 investors and qualification requirements”

A little preliminary background on hedge fund laws may be helpful. Hedge funds are investment vehicles which, by definition, would be subject to the registration requirements of the federal Investment Company Act of 1940. This means that, absent an exemption from registration, these funds would need to be regulated as mutual funds under the ICA. Many funds do not want to be registered as such because the regulations under the ICA are extremely onerous.

Luckily, the ICA contains two different exemptions for hedge funds – the Section 3(c)(1) exemption and the Section 3(c)(7) exemption. Under the 3(c)(1) exemption a hedge fund manager can accept investments from up to 99 outside investors. Generally these investors will need to be “accredited investors” and may also need to be “qualified clients” (these requirements come from other federal securies acts, and state laws, as appropriate). Under the 3(c)(7) exemption, a hedge fund manager can accept investments from an unlimited amount of “qualified purchasers.” A “qualified purchaser” is a very high net worth individual or institution (generally those persons who own $5 million in “investable” assets, which does not include a person residence). Because of other federal rules, a 3(c)(7) fund will often limit the amount of qualified purchaser investors to 500. Because many beginning hedge fund managers do not have a rolodex filled with “qualified purchaser” contacts, many of these start-up managers will initially begin a 3(c)(1) fund.

To your question, assuming you run a 3(c)(7) fund, you can “get by” the 499 investor limit but you would be subject to other federal laws. The 499 investor limit is in place because of the Securities Exchange Act of 1934 (“34 Act”). While most hedge funds do not need to register their securities because of the private offering exemption (Regulation D) under the Secutities Act of 1933, the hedge fund would still potentially be subject to registration under the 34 Act. The 34 Act requires an issuer (the hedge fund) to register its securities if (1) it has $10 million or more in total assets as of the end of a fiscal year and (2) has a class of equity interests which are owned by 500 or more persons. Generally a 3(c)(7) fund will have no problem meeting the first requirement and therefore the limit to 499 investors keeps such a fund from the registration provisions of the 34 Act.

So the answer to the first part of the question is yes – if you want to register your fund under the 1934 Act.

The second part of the question is no – unless you want to register under the ICA.

The next question you asked was:

I mean is there another type of fund to start with same freedom and lack of regulation with breadth of trading types, but that can accept investors with net worth under $250,000…and more than 500 of them?

Yes, you can start a registered fund – either (1) a mutual fund or (2) a fund registered under the 1933 Act. As noted above mutual funds are very highly regulated and a hedge fund manager probably does not want to start a mutual fund. The considerations involved in starting a mutual fund are considerable, and the legal costs to establish a mutual fund will be anywhere from about $50,000 to $150,000, whereas the legal costs to establish a hedge fund will be anywhere from $15,000 – $45,000 depending on the strategy. When establishing a mutual fund there are other considerations such as distribution and administration which can quickly escalate all costs.

If you only trade forex and certain types of futures, you may be able to do a registered fund (under the 1933 Act), but that is a longer and more expensive process than a traditional hedge fund. The legal costs to establish a fund registered under the 1933 act will be similar to the costs to establish the mutual fund. Additionally, the distribution and administration costs will need to be considered.

Please feel free to email any hedge fund questions you have through our contacts page. I will attempt to answer all questions and may post yours on this site.

Hedge Fund Seeder to Go Public

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Two hedge fund groups, Tuckerbrook Alternative Investments and HARDT Group Advisors, are joining forces to create HT Capital Corporation, a hedge fund seeder/incubator which will seek to go public with a $300 million offering of it securities. The IPO will be underwritten by Jeffries and Company, will be listed on the NYSE, and go by the symbol “HTG.”

HT Capital Corporation plans to use approximately $200 million to seed/incubate an initial stable of 8 promising hedge fund managers. The company will then seed an additional 10 managers within the 12 months after the IPO with proceeds from the IPO as well as a credit facility. HT Capital Corp. will invest in emerging managers through senior loans to the management company and participating interest (equity) investments in the hedge fund management company. These two types of investments are expected to produce four different revenue streams:

1. an 8.5% quarterly cash interest payment on the senior loan

2. a share of the management company’s management fees (expected to grow as AUM grow)

3. a share of the management company’s performance allocation (with the potential for such performance allocation to increase as AUM grow)

4. a stake in any sale of the hedge fund management company

The company will invest in emerging hedge fund management companies; the below statement comes from their N-2 filing with the SEC:

We plan to diversify across the following three distinct stages of emerging management companies:

“Incubation-stage” management companies, which will generally have few or no assets under management at the time of our investment, but may have, for example, an investment manager who recently came from the trading desk of a larger firm or established an investment track record in another firm’s name. We generally expect to provide incubation-stage management companies with between $5 million and $10 million of senior loans and a participating interests investment of typically about $1 million.

“Early-stage” management companies, which will generally have an investment track record of between 6 months and 24 months and between $5 million and $25 million of assets under management at the time of our investment. We generally expect to provide early-stage management companies with between $10 million and $25 million of senior loans and a participating interests investment of typically between $1 million and $2 million.

Acceleration-stage” management companies, which will generally have an investment track record of between two and three years and between $25 million and $100 million of assets under management at the time of our investment. We generally expect to provide acceleration-stage management companies with between $25 million and $50 million of senior loans and a participating interests investment of typically between $1 million and $2 million.

Hedge fund incubation platforms are becoming more and more popular as reports indicate that small and emerging managers present larger investors with the greatest opportunity for the most attractive returns. By participating in an incubation program as well, the investor will have the opportunity to allocate more assets to the manager in the future – a potentially valuable future right.

The Series 65 Exam

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If you are a hedge fund manager in certain states (California and Texas are two prominent examples) then your management firm will need to be registered as an investment adviser with your state’s Securities Commission. In all states, the prerequisite for such registration is that the firm have at least one investment adviser representative who has passed certain qualifying exams (the Series 65 exam or the Series 7 and Series 66) or have certain designations (CFA, CFP, etc).

This post intends to give you an overview of the Series 65 exam and some thoughts on taking and passing this exam.

The Series 65 basics

What: a three-hour (maximum) 140 question computer based exam which focuses on the following topic areas: economics and analysis; investment vehicles; investment recommendations and strategies; and legal and regulatory guidelines, including prohibition on unethical business practices. The exam features 10 ungraded questions (which can appear anywhere within the test) and an examinee needs to correctly answer 89 of 130 graded questions (70%).

Where: you will take the exam at either a Pearson-Vue or Prometric testing station.

When: you will sign up to take the exam at a time of your choosing on either the Pearson or Prometric website. It is recommended you schedule the exam at least a week prior to the date you plan to take it.

Why: it is required for a person to become registered as an investment adviser representative.

How to sign up

You will typically register for the Series 65 by submitting a Form U-4 through the IARD system or by submitting a Form U-10 online. Your law firm or your compliance consultant can help steer you through this process. Also feel free to contact us if you have any questions.

The cost to take the exam is $120. There may also be some state and IARD fees if you are signing up for the exam through the Form U-4 process.

How to study for the exam

I recommend to all of my clients that they put a pretty good effort into studying. I have seen a good portion of very smart hedge fund managers fail the exam on the first try. The central reason, in my opinion, is lack of a diligent study program. While the Series 65 is not a college chemistry exam, it still covers a lot of information which is probably new to the manager. Accordingly, I recommend that a manager set aside at least 40 hours to prepare for the exam. During the preparation phase, I recommend the following:

Get a study guide and read the guide from front to back. I read my study guide from front to back while I actively created notecards as I read each chapter. Doing so takes much longer, but afterward I was able to keep the notecards in my pocket and review them whenever I had free time, which kept the material fresh in my mind.

I used the Kaplan study guide. I am partial to the Kaplan study guides and have exclusively used these guide when studying for the various securities exams I have taken – I have passed the Series 3, Series 7, Series 24, Series 65 and Series 66 exams. The major frustration with the Kaplan guide is that it contained many errors. However, I think that Kaplan does the best job of preparing practice questions which will be very similar (if not exactly the same) to what you are likely to see on the exam. There are some other study guides out there like the “Pass the 65,” however, I have not found a guide which presents the information in a simple, matter-of-fact way like the Kaplan materials.

Other study options include various multi-media and internet applications. Kaplan also has a full-day class you can take from an instructor.

Take two to three practice exams. I took two Kaplan practice exams. After taking each exam, I examined the answer to every question, including the ones I correctly answered. This review process really helped me to solidify my understanding of the material. [Note: you may need to take more than two practice exams to feel comfortable with your knowledge base. If this is the case, I highly recommend taking more practice exams.]

Get a good night of rest the night before the exam. I always scheduled my exams in the morning. This way I can get the exam out of the way early and I do not need to be anxious during the day. I try to get a good night’s sleep the night before. At this point, it is not going to help your exam performance to stay up into the morning trying to cram.

Day of exam

Make sure you wake up early enough to be awake and alert. You should eat a proper breakfast. Allow extra time to get to the testing site. Pearson and Prometric have different rules about when you are supposed to show up at the testing site. A good rule of thumb is 45 minutes prior to your testing time. When you get to the testing site, you will sign in and the proctor will give you the rules of the testing site. Be ready to take everything out of your pockets and to take your jacket off (it is advisable to dress in layers as the testing rooms are often kept at very cool temperatures). You will likely be nervous before the test – I took the opportunity after signing in and before the test time to review a few of the more important note cards before I put them in my provided locker. This kept my mind busy, calmed my nerves, and gave me a little extra bit of confidence that I could answer the questions on the exam.

The exam

The exam is a computer-based exam so the first five minutes or so you’ll be given an on-line demonstration of the manner in which to answer questions and mark them for review. After this demonstration, the exam will start. The first ten to fifteen questions will generally be easier than the questions which come in the middle of the exam – don’t get too complacent. The middle of the exam will drag on and during this time there were many questions which I was not sure about and there were a lot of questions where I had to give a best guess. At about 2/3 of the way through the exam, I thought that I was going to fail for sure. Be aware of this, it happened to me in almost every single FINRA exam which I took.

Because the exam is so long – 180 minutes – you may need to use the restroom during the middle. If this is the case don’t hesitate to take some time for a break. During these breaks I would take some time to grab a drink of water and take a few deep breaths. When you get back, complete the last half or third of the exam in a methodical manner. If you encounter a question which you do not have a clue about how to answer, either guess and move on or guess and mark the question for review. Do not spend an inordinate amount of time trying to come to the correct answer – there are enough questions which you will know the answers to and it is most important that you get to those questions without being flustered. Remember also that the final 15 to 20 questions are generally going to be easier.

When you have answered all of the questions you will have the option to go back over your answers and to change any of your previous answers. It is recommended that you do not make any changes unless you are positive that your new answer is correct. Once you have certified that you are satisfied with your present answers the computer will ask you to confirm that you wish to proceed. When you confirm, the computer will begin to process your answers. During this minute or so your heart will race as adrenaline pumps through you. The screen will then tell you if you have passed or not.

If you don’t pass

Some people will not pass this exam – I have spent plenty of time on the phone talking to managers who almost passed. If you don’t pass it is not the end of the world. The major drawback of not passing the exam is that you will have to wait 30 days to take the exam again. If time is of the essence, this drawback could be the difference between an on-time hedge fund launch and the dreaded delay. As such, I always stress to the client that it is much better to be overprepared than underprepared. You will thank yourself for those extra few hours when you have passed the exam. If you do not pass the exam on the second try, you will need to wait 60 days to take the exam again.

***UPDATE FOR MAY 2010***

As many of you know, the Series 65 exam changed in 2010 and it is now much more difficult to pass.  I have heard more stories from people this year about not passing than I did last year.  Also a concern is that the study guides are not spending enough time on the new emphasis in the exam.  For instance, one person I just spoke with mentioned that there were many more questions on trusts and pensions than were covered in the study guides.  As always I recommend you get an up to date study guide and take at least two practice exams before taking the actual exam.

Article: What happened with the Quants?

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I wrote this article last October after a presentation made at a Southeastern Hedge Fund Association meeting. The title of presentation was “A Feature Presentation with Matthew Rothman, Managing Director and U.S. Head of Quantitative Portfolio Strategies, Lehman Brothers, Inc.” The meeting was held October 23, 2007 at The Ritz Carlton (Buckhead) in Atlanta, Georgia. Attendees included manager’s from Atlanta’s hedge funds, administrators, prime brokerage representatives and, of course, hedge fund lawyers.

October 24, 2007

We know the basic story for the quant blow-up this summer: in the beginning of July a few very large multi-strategy funds started experiencing large losses (at around the same time that the sub-prime sector was experiencing a melt-down). The funds began getting margin calls and needed to raise liquidity quickly beginning a chain reaction which eventually sent stocks lower, fueling the need sell more to meet margin calls.

While this is an overly simplistic reading of what happened over the summer, this overview set the stage for a presentation by Dr. Mathew S. Rothman on Tuesday to the Southeastern Hedge Fund Association. With some of the finest members of the south east’s hedge fund community gathered to examine what exactly happened with the quants this summer, Dr. Rothman, current Managing Director and U.S. Head of Quantitative Portfolio Strategies at Lehman Brothers, discussed his views on the events.

For those in attendance, including fund managers, lawyers, accountants, administrators and CFAs, the central concern was not exactly what happened in August, but what those events would mean for quants and investors going forward.

What quant managers will need to be aware of in the future

Our law firm helps to form hedge funds for new and emerging managers, including managers who are quants. It is common for lawyers and other service providers to explain to managers, especially new and emerging managers, what potential investors will look for from a quant program. We often provide clients with input on their pitchbooks and how they should “sell” their program to potential investors. In the wake of the quant blow-up this summer, and the insights provided by Dr. Rothman, we will be highlighting the following points for our quant clients.

Increase Transparency

The most important thing for potential investors is transparency. The more transparency a manager provides, the easier it is going to be to raise money. (Obviously this is not strictly true for the large established funds with stellar track records.) Quant is not an asset class and a quant program cannot be the sales pitch – emerging quant managers will need to sell their “type” of quantitative program. Managers need to get away from the “black box” mentality open up a bit, tell investors some of the inputs that will be used and also let investors know some of the inputs that will not be used – this is what we look at, this is what we throw away.

Be prepared to talk about Risk Management

Quant managers should have a good understanding of the risks of their program and be able to discuss these risks with investors. Specifically, managers will need to be able to discuss leverage and any human intervention or overrides of the models.

Understanding a program’s sustainable leverage levels is probably the most important risk management aspect of a quant program. While leverage provides a means to achieve incredible returns, it can also cripple a quant program. Levered programs may not be able to weather a prolonged downturn, which unlevered programs will.

[The fund managed by Dr. Rothman, which used no leverage, was actually up 30bps for August. While the fund was down 7% over 9 days, he was able to stick to his model because he did not have to unwind positions in order to meet margin calls. In contrast, Marketwatch reported that Goldman’s Global Alpha fund was down 22.5% for the month and J.P. Morgan’s Highbridge Capital was down roughly 18%.]

The human element and interaction with the quant model is also an important part of risk management. A quant model is just that – a model. While the model is designed to weather storms to a certain extent, some managers will include a “human override” component to the program. In some instances, allowing for a human override could prove to be exactly the wrong the strategy. Dr. Rothman noted that quant programs who stuck to their models during August were generally those programs which caught the snap-back. Those managers who rebalanced their portfolios (weather for reason of leverage or the human override) were those managers who missed the nice snap-back and ultimately were worse off then if they had followed their programs.

Be prepared for questions related to the August blow-ups

Fat tails and black swans are now standard terms investors use when talking about quant programs. It is very likely that you will be asked about fat tails and black swans by future prospective investors. Does this mean we will tell advisers to rewrite their risk models? No. However, you should at least be able to answer the question as to why your models do not address this phenomenon and it is a good idea to understand a model’s limitations during these times.

The Conclusion

While we may not completely understand what exactly happened in August, it is clear that prospective future investors are aware of the limitations of quant models and will generally want to see more information from managers. While it is always up to the market to decide what any one manager will need to tell prospective investors, moving forward we will let our quant clients know that it would be wise to address the above items when crafting a description of their investment program and deciding how they will market their fund.

New York based Hedge Fund Group mulls self-regulatory regime

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A group of New York based hedge fund professionals (the New York Hedge Fund Roundtable) are establishing a group to explore the possibility of instituting a hedge fund professional society/ self-regulatory organization. Such a group might be welcome in the hedge fund landscape, which is seeing greater strides by state and federal securities regulation to reign in (and regulate) the industry.

According to their website,

The New York Hedge Fund Roundtable was founded on three governing principles:

1. Continuously educating roundtable members from the investing & hedge fund worlds on relevant industry topics & forecasts.
2. Initiating Best Practices & knowledge transfer to the broader hedge fund world, allowing members to leverage peer information exchange and positively affecting both the profession and others.
3. Creating an environment to support social networking, allowing members to effectively engage with peers while helping them build their own careers & businesses.

A SRO would hopefully stem the rise of future regulation. However, the hedge fund industry has proved to be a hard sell on any sort of self-regulation and with the SEC maxed out with other crises (i.e. investment banks), any legitimate push for hedge fund regulation at the federal level is likely years away.

For more information see: http://www.reuters.com/article/fundsFundsNews/idUSN3135262220080806

For more information on the New York Hedge Fund Roundtable, plesee see: http://www.newyorkhedgefundroundtable.org