Almost exactly 4 years after a little known Connecticut based hedge fund manager took on the SEC in Federal court and won his challenge to have the SEC's ill conceived Hedge Fund Registration rule struck down, the rule is back, this time with the full weight of US law behind it.  Yesterday Congress finally passed the Private Fund Investment Advisers Registration Act of 2010 which, inter alia, will require many UK and other non-US hedge funds to register with the SEC. 

 
In brief, the new act will require non-US hedge funds to register with the SEC if they have more than $25m AUM attributable to US clients (or some higher sum as the SEC may decide) or if they have 15 or more US clients, irrespective of the related AUM.  However the definition of US client has been amended to include US investors in a hedge fund (i.e. US individuals, corporations, trusts etc) whereas previously fund investors were excluded from the definition of client.  This definitional change is likely to impact a very large number of non-US hedge fund managers.

 
The registration requirement, and related rules and regulations will take effect exactly 12 months from the date of the signing of the new law by President Obama, which is expected to take place at some point next week. Therefore non-US managers caught by the requirements have some time to consider and plan for the implications of the new requirements or, as the case may be, to seek structural or other ways to avoid the requirements.

 
Scott Wilson, CEO of IMS said today: “Dual FSA and SEC registration for UK asset managers is nothing new and there are currently about 200 dual registered firms in the UK.  However, the dual registration system has never worked effectively, is inefficient, highly confusing, is not cost effective and frequently works against the best interests of clients.  The two regulatory systems are simply not compatible: UK compliance is all about protecting clients from abuses by managers, unfortunately US compliance is all about protecting managers from abuses by the SEC.”