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Hedge fund threat to boycott US over new SEC rules

Hedge fund threat to boycott US over new SEC rules
By Patrick Hosking, Investment Editor
The Times
November 12, 2005

ONE of London’s biggest hedge fund managers is threatening to dump its American customers rather than submit to being regulated by the US authorities, The Times has learnt.

Charlie Porter, founder and president of Thames River Capital, lambasted the new rules, which from February 1 require any hedge fund manager anywhere in the world with more than 14 US clients to register with the US Securities and Exchange Commission.

“It’s an outrage that the SEC can dictate to the rest of the world,” Mr Porter said.

“We are considering asking our US investors to leave rather than register with the SEC.”

Thames River, which manages $7.25 billion (£4.17 billion) of assets, including several highly successful hedge funds, is already regulated by the UK’s Financial Services Authority.

“The FSA is a very strong power,” Mr Porter said. “Why should we kowtow to a foreign power? There’s no need.”

Many other London-based hedge fund are also incensed. Christopher Fawcett, a director of the hedge fund managers Fauchier Partners and chairman of the Alternative Investment Management Association, said there was strong opposition from several hedge fund managers in London.

“It will mean extra hassle and extra paperwork,” he said and also the potential for conflict: “Whose guidelines do you follow, the FSA’s or the SEC’s? “There’s also a principal of extra-territoriality here.”

Thames River’s clients are mostly European, Asian and African, but it does have a few clients in America.

While hedge fund clients tend to be “locked in” for periods of months or years, most fund managers can compulsorily redeem clients if they do not want them.

The crackdown is also infuriating US-based hedge funds, many of whom are exploiting a loophole to avoid registering.

Those managing less than $25 million are already exempt, but the SEC also exempts those hedge funds that prevent customers from redeeming their capital for two years or more.

Some managers are considering extending their so-called “lock-up” periods to avoid submitting to SEC scrutiny.

Kingdon Capital Management, a New York manager with assets of $4.6 billion, says the new regime will mean “a time consuming SEC audit process and an onerous e-mail retention requirement.”

Atticus Capital says that it has stopped accepting new money as a way of avoiding having to register.

The SEC, which is chaired by Christopher Cox, is under pressure to tighten its supervision of hedge fund managers after a number of alleged frauds.

Companies must apply by December 15 if they want to be registered by February 1.

TRIMMING THE HEDGE FUNDS

# A year ago the Securities & Exchange Commission horrified the hedge fund industry by voting to start regulating hedge fund managers

# Critics said the estimate of the extra compliance costs of $50,000 per firm woefully underestimated the true expense

# Many hedge funds were set up by traders desperate to escape from what they saw as the dead hand of regulation


LINK: http://business.timesonline.co.uk/article/0,,9063-1868448,00.html