legal framework for hedge fund

A very high value participant (or perhaps a qualified purchaser) as defined by Securities
Exchange Commission (SEC) is an individual with the asset base of $ 1 million dollars plus an
institution or possibly a fund or perhaps a trust using an asset base of $ 5 million. Besides this
statutory limit, investment in hedge funds is largely the preserve of sophisticated investors who
contain the required knowledge to assess the hazards related to committing to this asset class.
Even though original intent behind hedge funds was to purchase equity securities and utilize
leverage and short selling to "hedge" the portfolio's exposure to movements of the equity market,
this remit has altered. Today, hedge fund advisers use labyrinthine investment strategies and
techniques to increase investor returns and quite a few are very active from the trading of
securities, representing between nearly 20% of equity trading volume in america securities
market.
Mr Ben Axler
Regulating the Hedge Funds
The most clamorous reasons cited from the votaries of regulating the Hedge Fund sector is the
incredible increase of hedge funds along with the increased influence and power that hedge funds
are experiencing on the stock markets. The industry is attacked for being secretive, involved in
risky behavior and efficient at unduly influencing global economies and corporate activities. A rise
in fraud cases involving hedge fund advisers, juxtaposing with a rise in exposure of
unsophisticated small investors on the risks of hedge fund investing has enticed the policymakers
and regulators to create the hedge fund industry under greater scrutiny. Hedge Funds were
largely held responsible for the South East Asian Economic crises from the late 1990s, the failure
of the long run Capital Management Fund in the united states in 1990s and it is subsequent $ 3.5
billion bailout by the Federal Reserve Bank to stop the cascading collapse of global stock
markets; and the current surge of the Bombay Stock Exchange SENSEX, which even surprised
the Indian Finance Minister regarding know the advantages of such a surge, creates a
disagreement that some form of regulation needs to be encouraged for hedge Funds.
We have witnessed studies into the potential of direct regulation undertaken over the past years
by such bodies as being the Basel committee on banking supervision, the International
Organization of Securities Commissioners and in all probability most significantly, the usa
president's working group on stock markets. However, no major regulatory body has advocated
direct hedge fund regulation.
Self Regulations:
Even though there is not any statutory obligation to make a public disclosure, hedge funds
provide their potential investor using a private placement memorandum that discloses details
about the overview and investment strategies from the hedge fund. The memorandum offers the

adviser together with the maximum flexibility when deciding on, shifting and modifying its
strategies and arms him with broad discretion in valuing hedge fund's assets. Hedge Fund
investors generally receive some ongoing performance information, risk analysis and portfolio
profiles from the hedge fund advisors. Most hedge funds retain an auditor to conduct an
independent audit which if certified is prepared using generally accepted accounting principles
(GAAP). Market competition has resulted in a developing demand through the investors for
business-unit level SAS 70 assessment (Statement on Auditing Standards No.70 Service
Organizations,) by reputed firms.