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A more hands-on approach to investments is being taken by registered investment advisors, including the use of alternative products, according to a survey by an affiliate of Rydex Investments.
The poll of 630 RIAs, conducted online between February and May 2006, found that 38% employed tactical investment techniques in 2005, up from 17% in 2003. Nearly three quarters (74%) invest in exchange-traded funds, vs. 42% the previous year.
The changes suggest advisors are more actively managing portfolios in response to challenging markets. By contrast, the percentage of advisors who consider themselves as merely setting overall investing strategy, as opposed to active portfolio management, has declined from 68% in 2003 to 38% in 2005.
RIA businesses are doing well overall, with average assets under management per firm at a seven-year high of $127 million, an 18% increase over 2004 levels, the survey indicated. Profits were up 30% and revenues up 22% in 2005, but asset management fees declined as a share of total revenue. (More on the survey can be found in PracticeEdge, the Investment Advisor monthly e-newsletter, written by AdvisorBenchmarking and available at www.investmentadvisor.com)
SEC Backs Down on Appeal
Meanwhile, SEC Chairman Chris-topher Cox said August 7 that the Commission would let stand an appeals court ruling in June that struck down the SEC's rule requiring hedge fund managers to register with the Commission as investment advisors. Instead, Cox said the SEC would soon issue new rules designed to address the shortcomings in the previous hedge fund registration rule. A new anti-fraud rule would effectively "look through" a hedge fund to its underlying investors, rather than its clients, a change in terminology designed to circumvent the court's finding in Goldstein v. SEC that the hedge fund rule didn't adequately explain how investors were "clients" of hedge funds.
"This would reverse the side-effect of the Goldstein decision that the anti-fraud provisions of the Act apply only to 'clients' as the court interpreted that term, and not to investors in the hedge fund," Cox said in a prepared statement.
SEC staff will also be evaluating the effects of increasing minimum asset and income requirements for hedge fund investors, a move proposed years ago as an alternative to mandatory registration.
Cox also pointed out that hedge funds, despite no longer being required to register as investment advisors, are still subject to anti-fraud, civil liability, and other provisions of federal securities laws.
So far there hasn't been a huge rush to de-register following the court's ruling in the Goldstein case, so named for Philip Goldstein, the hedge fund manager who single-handedly challenged the SEC's rule in court.
Jeff Joseph is managing director of Alternative Strategies at RydexInvestments and also serves on the advisory board of HedgeWorld (www.hedge world.com), a global provider of hedge fund information and investment products. Chidem Kurdas is the New York Bureau Chief of HedgeWorld.
Everyone has some questions about hedge funds. Feel free to send yours to Jeff Joseph by e-mail at firstname.lastname@example.org.
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