New proposals to regulate hedge funds: SEC Rule 203(b)(3)-2

Abstract

On September 29, 2003, the Securities and Exchange Commission (SEC) issued a report on the “Implications of the Growth of Hedge Funds” (the “Report”). The Report raised several issues related to hedge funds and proposed a number of regulatory initiatives that the SEC might take. Its principal recommendation was that the SEC should require most hedge managers to register as investment advisers under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). On July 14, 2004, after a lengthy period of public comment on the Report, the SEC (“Commission”) adopted (by a split vote) Rule 203(b)(3)-2, which implements this registration recommendation, and set a two-month period for public comment before formally adopting the Rule on December 2, 2004