New York (HedgeCo.Net) – Connecticut has long been a haven for the hedge fund industry; where light regulation and a dense population of ultra wealthy investors lure the most talented of hedge fund managers.  But if some state lawmakers have their way, hedge funds will have to jump through a lot more hoops than they are used to, according to the Hartford Business Journal.

Under current law, hedge funds only allow accredited investors who have a net worth of $1 million or higher to participate.  The proposed legislation would bump that minimum requirement up to $2.5 million, with institutions needing at least $5 million in assets.

The new legislation would also require hedge funds to provide greater transparency by disclosing their fees and other information about management or investment strategy.  Hedge funds would also be required to obtain a state license as well as have an independent annual financial audit performed.

Many fear that by imposing these guidelines, Connecticut would have less of a draw, and many hedge fund managers could simply pack up and move to nearby metropolises like New York or Boston.

The pull for stricter oversight on hedge funds is by no means limited to the state level.  Many members of Congress have been pushing for greater transparency after hedge funds got blasted for having a hand in the financial crisis thanks to controversial practices like short selling. 

Others push for heightened regulation due to the recent outbreak of Ponzi schemes from so-called “trustworthy” individuals, like Arthur Nadel of Sarasota or the obvious case of Bernard Madoff where hundreds of investors were swindled out of their retirement.  However, many who oppose the oversight based on increased fraud argue that investors are ultimately responsible for where their money goes and should perform greater due diligence themselves before trusting anyone with large sums of capital.

Republican State Representative John Stripp told the Hartford Business Journal that it’s not about a “vendetta against hedge funds,” just that “there is a need to have some kind of regulation in place.”

Even European finance ministers agreed this past weekend to the direct regulation of hedge funds overseas, leading most to believe that the era where hedge funds could get away with anything, is coming to an abrupt end.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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