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Hedge Fund Exit Strategies

Because of the recent market turmoil, many hedge-fund investors have questions regarding what regulations are applicable to hedge funds, and how to withdraw their money from their hedge-fund investments if they want out. Indeed, hedge funds often present many different barriers to withdrawal, and there are essentially no regulatory prohibitions on these barriers.

Perhaps the best way to understand the regulations that apply to hedge funds is to compare them with mutual funds. Mutual funds are investment companies that are required by law to register with the U.S. Securities and Exchange Commission (SEC) and, therefore, are subject to stringent regulatory oversight. Virtually every aspect of a mutual fund’s structure and operation is subject to regulation under four federal laws, including the Securities Act of 1933, the Investment Company Act of 1940, the Securities Exchange Act of 1934 and the Investment Advisers Act. The Investment Company Act regulates the structure and operation of mutual funds and forces funds to safeguard their portfolio securities.

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