How Hedge Fund Managers Can Prepare for the Virtual Inevitability of Registration

Despite the fact that the origins of the present economic crisis can be traced largely to subprime mortgage lending and repackaging, that the most severe blow ups with the most wide-ranging ramifications occurred at the most highly regulated institutions, that Bernard Madoff did not manage hedge funds, as such – despite all this, increased hedge fund regulation during the coming year has come to be understood in the industry as a virtual inevitability.  Among the chief anticipated components of any forthcoming regulatory package is likely to be a delegation from Congress to the SEC to require registration of hedge fund advisers.  And most hedge fund law watchers expect any registration rule proposed by the SEC to be crafted with the 2006 Goldstein decision firmly in mind, so that the rule hews closely enough to any mandate from Congress to be entitled to Chevron deference.  (By the same token, any delegation from Congress on this point is likely to be broad enough to accommodate even relatively expansive rulemaking by the SEC.)  In a rule finalized in December 2004, the SEC required certain hedge fund advisers to register with the agency, and in June 2006, the D.C. Circuit Court of Appeals vacated the rule.  After some background on the 2004 rule and registration in general, we offer practical insight on what hedge fund managers can do to prepare for a registration requirement.

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