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Hedge herring

An unloved registration requirement is struck down, while the US Senate threatens renewed scrutiny of hedge funds. By David Snow

When the regulatory gods open a door, somewhere they close a window. Late June brought good news and bad news in the red herring issue of hedge fund regulation.

Legal experts in the private equity industry are closely listening to what US regulators are saying about hedge funds, because the line drawn between hedge funds and private equity funds is a faint one.

The US Court of Appeals in the District of Columbia Circuit has, via a unanimous decision, vacated a move by the Securities and Exchange Commission to require hedge fund advisors to register with the commission.

The registration requirement had gone into effect as recently as February 1.

The court announced in its ruling that the SEC had overstepped its authority in seeking to bring under its regulatory purview thousands of private partnerships loosely defined as hedge funds. Specifically, the court concluded that the SEC had employed a ?completely arbitrary? means of establishing investment-advisor authority over hedge funds – by changing the definition of ?client? from that of a fund to that of the underlying individuals and institutions who are party to the fund.

Under rules of the Investment Advisers Act of 1940, all advisors with more than 14 ?clients? must register with the SEC. Hedge fund advisers advise funds, according to the prior standard. Only a few very large firms manage more than 14 funds. But most hedge funds manage funds with more than 14 investors. In effect, the SEC changed the standard to force hedge fund advisors to ?look through? fund clients to underlying investors.

But the DC court ruled that ?[h]aving bought into the fund, the investor fades into the background; his role is completely passive.?

According to a client update from law firm Debevoise & Plimpton, the opinion ?may not be the final word on the rule.? The SEC may opt to bring a rehearing before the entire DC Circuit court.

The SEC has said it is investigating its options in light of the ruling.

Senate inquisition
In the meantime, if private equity firms think their day of regulation was indefinitely delayed by the court decision, they must have missed US Senate hearings held in late June, in which hedge funds were cast as abusers of the law and ripe for regulation.

Addressing the Senate Judiciary Committee, Senator Arlen Specter said: ?It's very important there be adequate investigation? to determine if ?we need new laws? surrounding hedge funds. Senator Orrin Hatch called hedge funds ?incredibly powerful.?

The hearings, however, were squarely focused on what some see as abusive stock trading practices, chiefly short selling. At least one speaker insinuated that some hedge funds have the influence to put the kibosh on unfavorable investigations. Former SEC enforcement officer, Gary Aguirre, testified that his investigation into the trading practices of Pequot Capital Management was interrupted by political pressure from Morgan Stanley.

The hearings had a tinge of alarm compared with similar hearings in May under the auspices of the Senate Subcommittee on Securities and Investment, in which a series of experts spoke on the futility of hedge fund regulations. One speaker, Adam Lerrick, a visiting scholar from the American Enterprise Institute, alluded to an SEC-authored distinction drawn between hedge funds and private equity funds – namely, the two-year lock-up period. Many hedge funds simply extended their investor lock-up periods to avoid having to register with the commission. Lerrick said in his testimony: ?[T]o try to define a hedge fund I think is a waste of time? It's more a question of defining the type of activity that funds do perform and whether you call them hedge funds or private equity funds or real estate funds or arbitrage funds really is irrelevant.?

Lerrick made a prediction that people nervously following the renewed pressure on alternative investment funds will appreciate. He said: ?Any attempt to put large-scale regulation on hedge funds, private equity funds? will meet with total defeat.?

Adveq appoints CFO
Europe-based private equity fund of funds manager Adveq has promoted Philippe Bucher to chief financial officer and executive director. Bucher joined the firm in 2005 as head of finance, prior to which he had audited financial services companies while at Arthur Andersen and corporate finance while at PricewaterhouseCoopers. He earned a masters degree in finance from the University of Zurich and is a chartered financial analyst and a Swiss certified public accountant. ?Over the past year Philippe has gained an in-depth understanding of Adveq's business and we have come to know him as a highly effective business professional,? said Adveq managing director Bruno Raschle in a press release. ?His appointment will considerably strengthen Adveq's senior management team and support our continuous growth and high standards of client care.? Adveq was founded in 1997 and currently manages around $2.5 billion of assets on behalf of its clients.

IVG installs new marketing head
IVG Immobilien AG, a European real estate investment company, has appointed Andrea Wöge as head of the firm's communications and marketing department. Wöge's appointment comes on the heels of former communications manager Thomas Rücker's departure from the firm. Previously, Wöge was at real estate-focused company Viterra AG, where she was responsible for the corporate communication department. In her new role at IVG, her responsibilities will include press relations, financial communication, internal communication and marketing.

Triago-X appoints new principal
Private equity secondary transactions specialist Triago-X has hired Justin Grover to assist with the international development of the company. Before joining Triago-X, Grover held a number of roles in both Paris and London. Most recently, he was manager of the government bond desk for Financor Viel Tradition group in Paris. Between 1992 and 1998, he was senior broker for Interbank Broker Financor before becoming European equity options sales manager at Exane between 1998 and 1999. Triago-Xhas been on a hiring spree since it revealed plans for a listing on Alternext, part of Euronext Paris.

AnaCap continues recruitment drive
AnaCap Financial Partners, a recently launched private equity firm focused on European financial services investments, has made four additions to its team. Amber Hilkene and Justin Sulger have joined as directors, while Diego Pace and Stephen Pully have been hired ass associates. Hilkene, now director of corporate development at AnaCap, was previously responsible for European business development at The Gores Group, a US private equity firm. Meanwhile, Sulger has joined AnaCap as director of business services, having previously been a vice president in Morgan Stanley's securitized products group, working on deal structuring and origination. Pace, previously an associate at Integrated Finance, has joined AnaCap as associate of risk and liability management. Pulley has been hired as an associate of business services and was most recently a management consultant at financial services-focused Mercer Oliver Wyman.

Daschle resigns from Apollo BDC
Early last month, New York-based Apollo Investment Corp announced that former US senator Thomas Daschle had resigned from the business development company. Daschle's resignation was tendered less than three months after he joined the BDC's board of directors. According to an Apollopress release, ?Former Senator Daschle advised the Company that his resignation was due to other commitments that made him unable to continue as a director.? As a BDC, Apollo Investment is a publicly traded fund that invests in middle market private companies and is affiliated with private equity firm Apollo Management.