Private funds and hedge funds refer to investments funds that are an element of a diverse market range. In the US, only accredited investors can participate in hedge funds. Financial journalist, Alfred W. Jones, first used the term “hedged fund” in 1949.
The critical start-up mass of asset under management has increased since the initial days of the hedge fund industry. In the 1970s and 1980s, it may have been possible to form a fund with less than $10 million.
But today, the level is at least five to six times that amount. Stemming from this, the client base had moved from mainly primarily high-net-worth individuals and overseas funds to include pension funds and institutional investors.
Over the past two decades, the focus and nature of funds have also changed along with the markets, hedging against challenging and unpredictable markets and maintaining the asset base along with maximizing profits.
Additionally, assets under the management and management fees have increased. Over the period, regulatory scrutiny has also greatly increased, especially in the wake of the controversial 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).
The next stage of the industry’s evolution is for large funds to institutionalize, handing over the ownership to the successor management.
Attorneys at SBEMP (Slovak, Baron, Empey, Murphy & Pinkney) law firm provides professional legal advice and services to clients in Palm Springs, Palm Desert, Rancho Mirage, Inland Empire, Orange County, Coachella Valley, Costa Mesa, San Diego, New Jersey, New York, and surrounding locations.
Recent Changes in Market Practice
The primary changes in the market over the last year were influenced by the anticipated priorities from the US Securities Exchange Commission (SEC) examination for 2018, including the following:
The security measures in place must be “reasonably designed” to protect the personal information of the investor. Given its own demonstrated susceptibility to hacking, the SEC may be particularly sensitive about this matter.
The SEC has concerns regarding the safety of the retirees and baby-boomers, with savings usually in excess of over US$400,000) or other retirement funds.
Investment adviser practices concerned with robo-advisors, disclosure of fees, anti-money laundering, advertising, and abusive sales and marketing practices remained a priority in 2017.
Regarding fund investment strategies, some funds follow multiple strategies while others make more concentrated investments, or use only a single strategic approach.
Investment Advisers Act
Hedge funds are governed by the Investment Advisers Act of 1940, as amended (Advisers Act). Hedge funds are usually managed by investment advisers.
Unless exempt (for instance, a private foreign adviser), large investment advisory companies (i.e., firms with Regulatory Assets under Management (RAUM) of $100 million or above) are required to register with the SEC. Smaller investment advisory companies must register with the appropriate state(s).
Similar to other market participants, hedge funds are subject to prohibitions against fraud. Managers (registered or unregistered) have a fiduciary duty to the funds that they operate.
Registered investment advisors (RIAs) are required to file Form ADV with the SEC, detailing, among other things, their fees, business, the kinds of securities they invest in, the types of clients, and the funds and assets that they manage.
Lawyers at the SBEMP law firm serve clients from Palm Springs, Palm Desert, Rancho Mirage, Inland Empire, Orange County, Coachella Valley, Costa Mesa, San Diego, New Jersey, New York, and nearby locations for a range of legal practice areas.
For more information or to request a consultation please contact the law offices of SBEMP (Slovak, Baron, Empey, Murphy & Pinkney) by clicking here.
SBEMP LLP is a full service law firm with attorney offices in Palm Springs (Palm Desert, Inland Empire, Rancho Mirage), CA; Indian Wells, CA; Costa Mesa (Orange County), CA; San Diego, CA; Princeton, NJ; and New York, NY.
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