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: Jim Hamilton's World of Securities Regulation

By Jim Hamilton

Kansas Reluctantly Grants IA Registration Exemption for Hedge Fund Managers in No-Action Letter

No enforcement action was taken by the Kansas Office of the Securities Commissioner against managers of a large private equity investment fund ("hedge fund") for failing to register as investment advisers under the Kansas Uniform Securities Act. General Counsel said, however, that the Securities Commissioner's Office was reluctant to grant no-action especially in light of Fall, 2008 economic conditions and would, in the near future, advocate the U.S. Congress to change federal law to provide the SEC with more authority to regulate hedge funds. Thereafter, the Securities Commissioner's Office would amend its securities rules to coordinate with the federal law changes. In the absence of federal law changes, however, the Securities Commissioner's Office would independently decide whether investment adviser registration should be required for hedge fund managers and advisers.

Legal representatives for the hedge fund inquired whether the managers of the fund would even need to register in Kansas since the fund had more than $25 million of assets under management and fewer than 15 clients that, therefore, exempted the managers from federal registration under Section 203(b)(3) of the Investment Advisers Act of 1940. General Counsel said that with over $25 million of assets under management the fund managers would be "federal covered investment advisers" subject to regulation by the SEC but that by being exempt from federal registration because of having fewer than 15 clients, the Kansas exemption for federal covered investment advisers would not apply and that, in addition, Kansas did not have a de minimus exemption for investment advisers with fewer clients. The no-action letter was granted "for the time being" because the Securities Commissioner's Office took into consideration the hedge fund representatives' request that Kansas be consistent with other state adoptions of de minimus and Section 203(b)(3) exemptions.

The Kansas Office of Securities Commissioner's website is http://www.securities.state.ks.us/

Full post as published by Jim Hamilton's World of Securities Regulation on November 11, 2008 (boomark / email).