Over one third of large hedge funds with over a billion in assets under management (AUM) aren’t registered with the SEC. That’s where the newest exec in the hedge fund office comes in.
Meet the Chief Compliance Officer, whose job it will be to ensure that the fund has the strategy and infrastructure to enable the SEC to monitor its operations. If a fund wants to raise money from institutional investors (like pension funds) — which if it wants to get really big, it does — they’ll have to hire a CCO, according to Advance Trading.
That and the other regulations required by Dodd Frank are currently rippling through the hedge fund industry and many changes have to be made.
“We just did analysis that found that, out of 220 $1 billion-plus funds, 82 had not yet registered as of March 25, but that doesn’t mean that they are not going to register in time,” Sandy Kaul, head of business advisory services for Citi Prime Finance, told Hedge Funds Review.
That means that over $82 billion is invested in unregulated hedge funds right now. The number seems kind of alarming because most of the world’s hedge fund managers are registered with the SEC (and that’s why we’re able to report on 13F filings each quarter) voluntarily if they have over $25 million AUM — probably because being regulated by a government body reassures investors and also helps with due diligence.
But it’s unlikely that a fund would be able to acquire $1 billion from investors without even more checks or monitors than the SEC provides.
And many hedge funds launch each year and this one is no exception. So within the 82 unregistered funds there are probably some new funds that simply haven’t completed their registration documents yet.
The real purpose of the SEC’s regulations is two fold.
“There will be a clearer view about the size of the industry.”
“But more beneficial for investors will be that they have to provide information they haven’t previously supplied, such as about prime broker relationships, how they handle custody and conflicts of interest.”
Unregulated funds will have to by the time Dodd-Frank rules, which require the registration, go into effect on July 21st.