From the September 2007 issue of Investment Advisor • Subscribe!

September 1, 2007

Hedge Funds Continue to Deregister

Hedge fund advisors continue to deregister from the SEC. During the past year, 732 hedge fund advisors (firms that advise at least one fund) have deregistered, according to the Investment Adviser Association (IAA) and National Regulatory Services (NRS) seventh annual report, Evolution/Revolution, which profiles the advisor profession.

The Goldstein ruling invalidating the SEC's hedge fund registration requirement is no doubt the reason why hedge fund advisors continue to dump their registration. However, the report notes that 1,990 hedge fund advisors remain registered, including 1,421 "specialist" hedge fund advisory firms, which say that more than 75% of their clients consist of hedge funds or other pooled investment vehicles. The large number of advisors terminating their registrations "needs to be viewed in the larger context of the growing number of hedge fund advisers that have voluntarily chosen to register under the Advisers Act," notes David Tittsworth, executive director of IAA, in a prepared statement. "It is striking to consider that there were only 329 firms that primarily advise hedge funds registered with the SEC in 2001 and that today there are 1,421. I think it is likely that the trend favoring voluntary SEC registration with continue.

The report, which is based on data obtained from electronic filings by RIAs with the SEC as of April 2, 2007, found that the number of SEC registered investment advisors continues to grow. As of April 6, there were a total of 10,446 registered with the SEC (including 1,077 entities that report less than $25 million in assets under management, many of which are pension consultants), the report found. While this represents only a 1.5% increase from the 10,290 firms registered with the SEC last year, the report notes, total assets under management reported by RIA firms reached an all-time high of $37.6 trillion, representing a 19.9% increase above the $31.4 trillion reported in 2006.

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