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February 24, 2003 at 07:00 PM
NEW YORK (HedgeWorld.com)–New investment adviser regulations for New York State are expected to catch many hedge fund managers that were previously unaffected.
Under the regulations, advisers with more than five clients are now required to register, whereas the previous threshold was 40. In this context, “client” is defined as an entire entity that receives investment advice and operates or is formed in New York State. So each hedge fund counts as one client. But so does each separately managed account.
“Between managed accounts and hedge funds, a firm can easily have three or four clients,” explained David Plutzer of the New York office of law firm Bryan Cave. “If it then starts another fund, it has to register.”
The requirement can be met by either registering with the state or registering at the federal level and sending the notice to the state. The same ADV form has to be completed in either case. There are exemptions. “Managers have to be more mindful now of how many clients they have,” Mr. Plutzer suggests. “It may affect how they structure their business.”
Federal vs. State
Registering with the Securities and Exchange Commission has advantages. In particular, it frees the adviser from dealing with state differences and makes it more attractive to institutional investors. In Mr. Plutzer’s experience, many people in this situation prefer to register at the federal level. This does subject the advisor to other SEC rules and audits, however.
