On 14 July 2004 the US Securities and Exchange Commission (SEC) published for comment the proposed Rule 203(b)(3)-2 that would require hedge fund advisers to register with the Commission under the Investment Advisers Act of 1940. Yet, despite the initial outcry from hedge funds, only 45 firms have bothered to comment on the proposal – and not all of them are specific.
Or so says CarbonBased Consulting, a research and advisory firm in the asset management industry. Furthermore, says the firm, a vast majority – 20 of 31 – of the issue-specific comments commend the SEC’s initiative. “These respondents generally agree that the hedge fund industry is in need of some regulation and will increase transparency and provide enhanced investor protection,” says CarbonBased Consulting. “The relatively few who disagree with the SEC proposal expressed a belief that the “invisible hand” of the market serves as sufficient control. While some respondents also suggested amendments to the proposal, they were fairly narrowly focused.”
“In spite of the initial outcry, opponents of the proposal have failed to mobilize their resources and vocalize their opinions to the SEC,” says Kenneth M. Neuhaus, CarbonBased’s Executive Vice President and Chief Operating Officer. “While hedge fund managers may have reviewed, they have not commented. This gives the SEC ample ammunition to justify moving forward with virtually universal registration requirements,” he said.
Carbon says it continues to believe that constructive suggestions can be made that will address SEC concerns without being overly onerous on the industry.