Revised Hedge Fund Limits May Have Limited Impact

Date: Thursday, December 14, 2006
Author: Dailyii.com

What impact will revising hedge fund investor limits have? Nothing much positive, suggests Amit Chokshi of London-based Orgtel Finance. Writing on Seeking Alpha, Chokshi says rewriting the accredited-investor rule by the Securities and Exchange Commission’s raising of the 25-year-old minimum for net worth of $1 million to $2.5 million is a "misguided crusade" to protect "the little guy." SEC Chairman Christopher Cox, in announcing the new limit, says the $1 million minimum was "not only out of date, but wholly inadequate to protect unsophisticated investors from the complex risks of investment in most hedge funds." Ultimately, however, it would have little impact on the actual numbers of hedge fund investors – what’s a couple of a million to the well-heeled? -- but could severely dampen the entrepreneurial spirit that has attracted managers to the industry. Notwithstanding Cox’s word, the upped limit is not likely to accomplish his goal because the typical investor is increasingly of the institutional variety with hundreds of millions or more in assets under management. What the changes will do, says Chokshi, is "make it that much more difficult for honest managers to successfully launch start-up hedge funds and crimp the ability for emerging managers to strike out on their own." Chokshi says Cox could better protect smaller investors by spending "most of his time focused on pension funds ramping up their allocations to alternative investments." He says, "Nobody has blinked as buyout funds have purchased company after company and what people fail to understand is the end risk lays with the limited partners, not the general partner." The SEC unanimously approved the proposal late Wednesday.