Hedge funds of funds said they have seen little benefit resulting from the Securities and Exchange Commission's rule requiring hedge fund managers to register. Registration provides a false comfort to investors, said James Foster, managing director of Greycourt & Co., a Pittsburgh-based investment advisor, speaking at Financial Research Associates' hedge fund compliance forum Tuesday.
Some hedge fund managers see registration as a good housekeeping seal of approval, said Joyce Heinzerling, chief compliance officer for New York-based Archery Capital, a fund of funds firm. Heinzerling said she has seen hedge fund managers' Web sites with banners across the top stating "SEC-registered." Andy Stewart, general counsel and head of business development at FRM Research, a New York-based funds of funds firm, said: "We've seen many managers that haven chosen not to register have a better culture of compliance." Getting to know the manager personally, rather than the fact of its registration, will be the basis for an investment decision, Heinzerling added.
The registration requirement has prompted some of the largest managers to rely on the two-year lockup exemption to avoid registration. Foster said the lockup has created a liquidity mismatch with funds of funds offering quarterly liquidity while underlying funds may have two-year lockups. Funds of funds are "forced to be liquidity providers to the market," said Stewart, who added that his firm has credit lines available for fund redemptions.