Erisa Rules For Hedge Funds In Palm Beach
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Under ERISA, each fund is subject to additional requirements and obligations once more than 25 percent of the fund's assets under management (AUM) are subject to ERISA (the 25 percent threshold).
ERISA prohibits cross trades, the exchange of assets between two accounts without going through a public market. There have been numerous exemption requests motivated by a desire to reduce transaction costs. Mutual funds are permitted to cross trade under Rule 17a-7.
As a result, most hedge fund managers seek to keep the level of investments by Benefit Plan Investors in their funds below the ERISA 25% threshold at all times so as to avoid such obligations.
In addition to potential SEC oversight, many hedge funds operating in the U.S. are regulated by the Commodity Futures Trading Commission (CFTC), including advisers registered as Commodity Pool Operators (CPO) and Commodity Trading Advisors (CTA). Funds may also be subject to state-level regulations.
Under ERISA, each fund is subject to additional requirements and obligations once more than 25 percent of the fund's assets under management (AUM) are subject to ERISA (the 25 percent threshold).
Hedge funds are not more tightly regulated primarily due to their investor base, market impact, and the nature of their operations. Unlike mutual funds, hedge funds typically cater to accredited or institutional investors--those considered financially sophisticated and capable of understanding the risks involved.
Because they are not as regulated as mutual funds or traditional financial advisors, hedge funds are only accessible to sophisticated investors. These so-called accredited investors are high net worth individuals or organizations and are presumed to understand the unique risks associated with hedge funds.
The rule is triggered if you raise enough dollars through retirement accounts. Generally speaking, it is wise to stay below 25% of retirement plan assets unless you qualify for an exception. For "fund of funds", the fund acts as an ERISA investor.
Investing in hedge funds requires a minimum of Rs. 1 crore, making them mostly inaccessible to the general public. These funds carry high risk and are subject to significant taxes. Hedge fund strategies suit affluent investors with surplus funds who can handle additional risk for the potential of higher returns.
