Alternative Investment Management Association
US domiciled advisers to hedge funds and many non-US domiciled advisers to hedge funds with US person investors are primarily regulated under the provisions of the Investment Advisers Act of 1940.
An investment manager of a hedge fund that has one or more US investors may be required to register with (i) the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940 (the ‘Advisers Act’) and/or (ii) the Commodity Futures Trading Commission as a commodity pool operator and/or a commodity trading advisor.
Securities Exchange Commission (SEC)
An investment adviser to a fund which allows investment by one or more US investors must be registered with the SEC or exempt from SEC registration. Many advisers to hedge funds had previously avoided registration with the SEC under the Advisers Act by relying on an exemption for investment advisers with fewer than 15 clients (with each fund advised counting as only one client) which did not hold themselves out to the public as investment advisers (often referred to as the private adviser exemption). The Dodd-Frank Act, which was enacted on 21 July 2010, amended the Advisers Act, eliminating the private adviser exemption and thus requiring advisers to private funds to register with the SEC unless the adviser can rely on an alternative registration exemption.
Commodity Futures Trading Commission (CFTC)
Operators (Commodity Pool Operators – ‘CPOs’) and advisers (Commodity Trading Advisors – ‘CTAs’) of funds that are offered to US persons and transact in “commodity interests” (which includes commodity futures, retail foreign exchange contracts and most swaps) must register with the CFTC or be exempt from registration. From 2003 until the CFTC’s regulatory overhaul of its Part 4 rules, Rule 4.13(a)(4) provided a broad unlimited trading exemption for CPOs of private funds from CFTC registration and regulation. In February 2012, the CFTC finalised its amendments to the Part 4 Rules and rescinded the CPO exemption under Rule 4.13(a)(4). CPOs of funds that were relying on the 4.13(a)(4) exemption will be required to either: (i) stop transacting in commodity interests; (ii) limit such trading and seek to qualify under Regulation 4.13(a)(3) (a de minimis trading exemption) and file for such exemption with the NFA; or (iii) register the pool operator with the CFTC as a CPO. Managers that choose to register with the CFTC may still be able to rely on certain disclosure, reporting and recordkeeping relief, but will be subject to other compliance obligations for CPOs set forth in the CFTC regulations.