Overview of Hedge Fund Investment Advisors

It is often said that hedge funds are unregistered or lightly regulated investment pools.  While this is correct, there are certain regulations which an investment manager must follow including certain regulations under the Investment Advisers Act of 1940 (and the securities laws of the state of residence of the hedge fund manager).  These regulations may require a hedge fund manager to be registered as an investment advisor.

Definition

In general terms an investment advisor is any person (or company) which receives remuneration for providing investment advice to a client.  This will include all hedge fund managers.

Registration or Exemption

While all hedge fund managers will fall within the definition of investment advisor, not all hedge fund managers will need to be registered. An investment advisor will need to be registered with the U.S. Securities and Exchange Commission or with the state securities division if the advisor does not fall within an exemption from the registration provisions.  The exemption may be at the federal level, the state level or both.  (Please see this article on the Section 203(b)(3) exemption.)

Other Requirements

All investment advisors are fiduciaries and must act in the best interest of their clients.  Investment advisors (whether or not such advisor is registered) will need to adhere to the anti-fraud provision of the Investment Adviser’s Act of 1940.

Other helpful articles on investment advisors include:

Please contact us if you have any questions.

October 13, 2008 | Filed Under Hedge Fund Structure, Investment Advisor

 

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