Higher hedge fund threshold on hold

A controversial proposal to raise wealth qualifications in alternative investments is being put on hold by the SEC.
JUL 09, 2007
A controversial proposal to raise the wealth threshold for investors in hedge funds and other alternative investments is being put on hold by the Securities and Exchange Commission. The proposal to raise the so-called “accredited investor” standards for hedge funds was part of a comprehensive proposal that will be addressed at meeting to be held Wednesday by the SEC in Washington. The proposal, made last December, would prohibit people from investing in hedge funds and other private pooled investments unless the person has at least $2.5 million in “investable” wealth, excluding a person’s residence. Currently, an individual must have $1 million in assets, including the value of a person’s home. The wealth requirement has not been altered since 1982, and inflation has made it likely that many people in high-value real estate areas could be eligible for investing in risky hedge funds, the SEC said when it issued its proposal. Many financial advisers commented that the proposal would prevent them from serving their clients, who invest in such things as real estate investment trusts. The proposal has “raised a whole host of questions about other types of alternative investments,” said Barry Barbash, a partner with law firm Willkie Farr & Gallagher LLP, which has offices in Washington and in the firm’s New York headquarters. Mr. Barbash was director of the SEC’s Division of Investment Management from 1993-1998. “What’s happened is the commission recognized that the undertaking needs to be broader,” said Mr. Barbash. The SEC is expected to approve another part of the proposal protecting hedge fund investors from fraud.

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