While the Securities and Exchange Commission ponders its next step in how to regulate hedge funds, HFs may want to consider the following, courtesy of law firm Kirkpatrick & Lockhart Nicholson Graham. First, don’t delay in applying to deregister. Once the SEC slates your firm for audit, no application in process will stop it. Second, a hedge fund should consider whether registration is “helpful or necessary for purposes of achieving status as a qualified professional asset manager under the Employee Retirement Income Security Act under ERISA,” or “desirable” for other purposes (such as “to satisfy preferences of current and prospective investors”). Perhaps most important, says Kirkpatrick & Lockhart, is that even without SEC registration, hedge funds still may be required to register as an investment adviser under one or more state laws. Finally, for those who circumvented the SEC registration by taking advantage of a loophole in the rule that allowed exemption for funds with lockups of more than two years, now is a good time to amend fund documents “to reduce or eliminate the lockup on previously issued securities.”
