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News August 28, 2006 Issue

Hedge Fund Managers Plan to Keep Compliance Changes Post-Goldstein

To find out what hedge fund managers plan to do following the Goldstein decision, Greenwich Associates surveyed 47 hedge fund managers between July 18 and August 3. Almost 70 percent of those firms were SEC-registered.

About 20 percent of the firms that responded to the survey said that they would de-register in the wake of Goldstein. About half said they weren’t sure how they would proceed. The remaining 27 percent said they would remain SEC-registered. According to Greenwich, many of these firms noted that registration "served as a useful marketing tool and that ‘flip-flopping’ on registration would send the wrong message to clients."

More than 30 percent of the hedge fund firms said that SEC registration had caused them to expand staffing, particularly in the compliance area. Many reported that they had upgraded technology, implemented operational best practices, and initiated new compliance monitoring procedures.

Those compliance improvements appear to be sticky. Nearly all of the firms that had increased staffing said that they would keep their new staffing levels. Two-thirds of respondents said they planned to proceed with mock inspections and year-end compliance reviews, even if they de-registered.

Of note: The SEC did not officially announce that it would not appeal the Goldstein ruling until August 7, a few days after the survey closed.