Hedge funds with regulatory assets under management in excess of $100 million are required to register with the U.S. Securities and Exchange Commission (SEC). Advisors who have regulatory capital under management between $100 million and $150 million and qualify for the private fund advisor exemption do not have to register with the SEC.
Hedge Fund Regulation
After 2011, the Dodd-Frank Act raised the lower limit for hedge funds advisors to register with the SEC to $100 million and also defined a new category of advisors, called mid-sized advisors, who have regulatory assets under management between $25 million and $100 million. An advisor of a mid-sized hedge fund does not have to register with the SEC if he is registered with the state where his principal office is located. However, an advisor of a mid-sized hedge fund is required to register with the SEC if his home state has inadequate regulation and he does not have the private fund advisor exemption.
Private Fund Advisor Exemption
A hedge fund advisor may avoid registration with the SEC if he qualifies for the private fund advisor exemption under the Dodd-Frank Act. This exemption is applicable to an advisor of a hedge fund who has principal offices located in the United States, has regulatory assets under management below $150 million, and only has private fund clients. If a hedge fund advisor has at least one non-private fund client, he is not eligible for the private fund advisor exemption. Also, all assets count towards the $150 million ceiling, including assets managed outside of the United States.
(For related reading, see "Evaluating Hedge Fund Performance.")