Lawyers on Registration Day Find Varying Reactions from Clients

NEW YORK (HedgeWorld.com)–A partner at a law firm that does a lot of work for hedge fund managers said [last] week that there [was] no rush of “clients who are just now realizing they need to register,” although there is work under way at the firm, as there has been for months, to assure that its clients are in compliance with the new registration regime effective [Feb. 1].

Martin Sklar, partner at Kleinberg, Kaplan, Wolff & Cohen PC in New York, has been with the firm for 20 years. Much of his work there involves hedge funds.

He said [Jan. 30] that KKWC’s clients include examples spread out over the “whole range of reactions” to the new Securities and Exchange Commission mandate. Some clients are suspending their offerings; others are going to 25-month lock-ups to avoid the requirement.

The new rule imposes the registration requirement on most hedge funds but has a statutory exemption that covers investment advisers with fewer than 15 clients, by “looking through” a pooled investment vehicle as the “client” of an adviser and counting each contributor to that pool as one. Some of KKWC’s clients have determined, Mr. Sklar said, that they have fewer than 15 clients even after this look-though, and so are outside the requirement.

He declined to estimate, even roughly, any percentages as to how many of KKWC’s hedge fund clients fit into each one of the reactions along that range.

The look-through rule is at the heart of an ongoing challenge to the legitimacy of the SEC’s regulation under the statute, a challenge being pressed by Phillip Goldstein, the principal of Opportunity Partners LP in Pleasantville, N.Y. Mr. Sklar said that he “hasn’t had people rely upon the possibility that the regulation will be overturned, although a lot are hoping for it.”