The rules about who can invest in hedge funds don't make sense.

[skepticalbeliever]

NEW YORK: In a year characterized by the undoing, redoing or modifying of regulations, hedge funds for a time looked as if they would end 2006 as the only major business more regulated than they had been before. Until now.

The U.S. Securities and Exchange Commission, under its chairman, Christopher Cox, embraced its investor protection mandate Wednesday and redefined who is rich, severely limiting the number of people who can invest in hedge funds. The impact of the rule, if passed, will be negligible for big funds that attract the majority of money and disastrous for small funds that depend on rich people, and even the moderately rich, to get started.

The rule will be significant for the commission because it finally gives it ammunition to fight congressional demands to know what the agency is doing about all that money in hedge funds. The commission started 2006 with a registration rule that forced most hedge funds to disclose the names and criminal records of those running the funds and permitted the SEC to do routine audits. But a court tossed out registration, animating the hedge fund industry until Amaranth Advisors, a $9 billion fund, staged a disappearing act.

Soon afterward, the Connecticut attorney general and some high-ranking members of Congress took notice and serious regulation looked possible. That impulse appears to have been squelched by the November elections, which put Democrats in power, and the rule.




http://www.iht.com/articles/2006/12/15/business/hedge.php

I really don't understand why the government should decide which funds I invest in. And how does the amount of money you have make you qualified to determine what makes for a good investment?

Logic seems to say that there should be the same regulations should be placed on who can invest in penny stocks, but there isn't. I can put my life savings in to companies that are going bankrupt like syntax brilliant or sharper image, but not a hedge fund. That's just insane to me.

It isn't the responsibility of the government to protect me from my self.

[Gazpacho]

http://www.iht.com/articles/2006/12/15/business/hedge.php
I really don't understand why the government should decide which funds I invest in. And how does the amount of money you have make you qualified to determine what makes for a good investment?
Although it's stated as a restriction on investors, the restriction is more on managers not to promote these risky, less-regulated, less-disclosed funds to people who would be financially ruined if they fail. Because the government doesn't want to clean up afterwards (cf. savings & loan associations)

It isn't the responsibility of the government to protect me from my self.
That's not a view most Americans share.

[Nim Chimpsky]

http://www.iht.com/articles/2006/12/15/business/hedge.php

I really don't understand why the government should decide which funds I invest in.


I won't go into a gross amount of detail, but suffice it to say, YES, the government CAN decide what you invest in, to a small degree. They do this by securities legislation that was enacted to protect investors following the crash of 1929. You have the 1933 Act which governs primary issues and the 34 act which covered the secondary market.

http://en.wikipedia.org/wiki/Securities_Act_of_1933
http://en.wikipedia.org/wiki/Securities_Exchange_Act_of_1934

Hedge funds and other private offerings are exempt from these acts IF they follow a bunch of rules and regulations.....one of those being that they can't sell the investments to people with limited financial means. These are detailed in "Regulation D" or "reg D" for short.

http://en.wikipedia.org/wiki/Regulation_D


And how does the amount of money you have make you qualified to determine what makes for a good investment?

The accredidation standards were set in 1982 when having a million bucks was rich. The government decided that anyone with a $1,000,000 or who makes more than $200,000 per year, should be able to invest in private offerings because they could afford to lose money in these instruments. It really doesn't say anything about your ability to decide, rather that the feds say that if you have lots of money you:

a. should know better
b. can afford to lose some
c. can afford to pay for advice

There are now several mutual funds out there that use hedging techniques and can be bought for just a few grand.


Logic seems to say that there should be the same regulations should be placed on who can invest in penny stocks, but there isn't. I can put my life savings in to companies that are going bankrupt like syntax brilliant or sharper image, but not a hedge fund. That's just insane to me.

The difference here is in the disclosure and the regulation process that ALL public offerings have to go through. BRLC and SHRP went through a lengthy disclosure process, issued a prospectus, got SEC approval and provided a great deal of pertinent financial data to every prospective investor. The SEC enacted this procedure to provide you with necessary information to make a decision to invest or not.

Hedge funds, acting under the exemption, are required to provide you with NOTHING, no information, no disclosures, no holdings information......nuttin', bupkis.

It isn't the responsibility of the government to protect me from my self.


That's more appropriate for the political forum. I'm sure you can find plenty of democrats who will vehemently disagree with you and a whole host of libertarians who back you and laugh as you lost all your money.