By BLOOMBERG NEWS

Published: May 15, 2003

WASHINGTON, May 14 (Bloomberg News) Hedge fund executives said at a Securities and Exchange Commission hearing today that they would support raising the minimum wealth requirement for their investors in a bid to stave off new regulations.

The hearings come after a yearlong S.E.C. staff investigation of the $600 billion industry. Private investment partnerships have more than doubled in number over the last five years as they have grown in popularity with smaller, less-sophisticated investors seeking relief from a slumping stock market. After assessing the comments, the commission plans to issue a report on its recommendations.

Representatives of hedge funds said that they were not trying to attract small investors who did not understand the complex investment strategies and that the funds had succeeded, in part, because they were not heavily regulated.

Hedge funds avoided the catastrophic markets because they are flexible and are using that flexibility, said Robert Schulman, co-chief executive of Tremont Advisers Inc. an investment consulting firm.

The chairman of the S.E.C. William H. Donaldson, said, We’re looking to insure investor protection and are focusing on issues such as retailization of hedge funds, transparency, risk management, conflicts of interest and fraud.

Hedge fund investors must have at least $1 million in net worth or have made more than $200,000 in each of the last two years, a rule that has not changed for more than two decades. The wealth qualifications were established to try to ensure that only well-to-do sophisticated investors put their money in hedge funds.

I believe the limit is anachronistic, said James R. Hedges, president of LJH Global Investments, a hedge fund consultant in Naples, Fla. Mr. Hedges and other industry representatives did not say how much the limit should be raised.

The number of hedge funds has increased about 3,500 over the last five years, according to Tremont Advisers. The 6,000 funds now in operation have about $600 billion under management; the amount in 1990 was about $50 billion.

Mutual fund companies are offering products called funds of funds, which allow investors to put money into several different hedge funds. The minimum investment level for those funds, which number fewer than 20, can be as low as $25,000.

Elizabeth Osterman, assistant chief counsel in the S.E.C.’s investment management division, said funds of funds were an area we have been focusing on quite a bit in our investigation because of their potential for attracting retail investors.

ASHINGTON, May 14 (Bloomberg News) Hedge fund executives said at a Securities and Exchange Commission hearing today that they would support raising the minimum wealth requirement for their investors in a bid to stave off new regulations.

The hearings come after a yearlong S.E.C. staff investigation of the $600 billion industry. Private investment partnerships have more than doubled in number over the last five years as they have grown in popularity with smaller, less-sophisticated investors seeking relief from a slumping stock market. After assessing the comments, the commission plans to issue a report on its recommendations.

Representatives of hedge funds said that they were not trying to attract small investors who did not understand the complex investment strategies and that the funds had succeeded, in part, because they were not heavily regulated.

Hedge funds avoided the catastrophic markets because they are flexible and are using that flexibility, said Robert Schulman, co-chief executive of Tremont Advisers Inc. an investment consulting firm.

The chairman of the S.E.C. William H. Donaldson, said, We’re looking to insure investor protection and are focusing on issues such as retailization of hedge funds, transparency, risk management, conflicts of interest and fraud.

Hedge fund investors must have at least $1 million in net worth or have made more than $200,000 in each of the last two years, a rule that has not changed for more than two decades. The wealth qualifications were established to try to ensure that only well-to-do sophisticated investors put their money in hedge funds.

I believe the limit is anachronistic, said James R. Hedges, president of LJH Global Investments, a hedge fund consultant in Naples, Fla. Mr. Hedges and other industry representatives did not say how much the limit should be raised.

The number of hedge funds has increased about 3,500 over the last five years, according to Tremont Advisers. The 6,000 funds now in operation have about $600 billion under management; the amount in 1990 was about $50 billion.

Mutual fund companies are offering products called funds of funds, which allow investors to put money into several different hedge funds. The minimum investment level for those funds, which number fewer than 20, can be as low as $25,000.

Elizabeth Osterman, assistant chief counsel in the S.E.C.’s investment management division, said funds of funds were an area we have been focusing on quite a bit in our investigation because of their potential for attracting retail investors.