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News January 29, 2007 Issue

Hedge Fund Managers, By the Numbers

According to SEC associate director Robert Plaze, 259 hedge fund advisers have withdrawn their registration due to the Goldstein decision.

Speaking at last week’s ALI-ABA conference, Plaze reported that there currently are 10,483 advisers registered with the SEC. Of those, 2,256 (22 percent) are hedge fund advisers.

Putting those 259 post-Goldstein deregistrations into context, Plaze noted that 99 other advisers also withdrew since the Goldstein decision, simply as a result of going out of business or "moving on to other things." And, he added, 61 new hedge fund advisers have registered with the Commission, post-Goldstein.

What’s behind the trend? Foley Hoag partner Peter Rosenblum noted that some investors may be pushing hedge fund managers to deregister. "The large investors that seem to be dealing with our clients are telling them to deregister," he said. They are "trying to force" the managers to deregister "on the theory that it’s a distraction, it costs money, it’s going to increase their fees and expenses, and they’ll do their own due diligence and oversight." He added that "a number of the big fund of funds investors are telling people to deregister as soon as they can."

Rosenblum expressed surprise at this result. "I would have assumed that exactly the opposite would have been the case and they would have favored registration and some overseeing," he said. And he noted that the push for deregistration does not apply to ERISA funds: "When you have a fund that has been ERISA-ized because it is over 25 percent plan assets, the manager there has to be registered."

Rosenblum also reported that newer hedge fund managers are less inclined to register than firms that have been around for awhile. "Anecdotally within our office, we’ve seen this pretty clearly," he said. "The more recent wave of managers, the last four, five years, have said ‘No, we don’t want to be registered.’"