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MFA Urges Revising Benefit Regs For Hedge Funds
The Managed Funds Association has urged the Department of Labor to revise the regulation requiring hedge fund managers to count the amount of benefit plan investor money in their funds separately by share class.
The Managed Funds Association has urged the Department of Labor to revise the regulation requiring hedge fund managers to count the amount of benefit plan investor money in their funds separately by share class. The DOL requires hedge fund manages to test each class to determine whether benefit plan investors hold more than 25% in any single class of the fund. If the amount exceeds 25%, the fund is required to comply with the Employee Retirement Income Security Act. In written testimony to a DOL advisory council, John Gaine, president of the MFA, said the requirement for class by class testing is unnecessary and burdensome. "We felt it was an arbitrary distinction that didn't make sense," Gaine said. Hedge fund managers, instead, should be permitted to look at the holdings of the fund as a whole to determine if they exceed the 25% threshold, the testimony stated. Gaine was testifying before the DOL's Advisory Council on Employee Welfare and Pension Benefit Plans Working Group on Aug. 11. The advisory council seemed receptive to the MFA's recommendations, but it is too early to speculate about what future actions will be taken, Gaine said.
Hedge fund managers have difficulties complying with the regulation, because the DOL does not define the term "class" and no other guidance is available. "Without additional guidance, it is impossible for hedge fund managers to determine what the term 'class' means for purposes of applying the significant benefit investor test," the testimony stated.