WEST PALM BEACH, FL (www.HedgeCo.Net) – The Venture Capital market participants are still uneasy with the new U.S. Hedge fund laws recently passed by the Securities and Exchange Commission {SEC}.Some describe the new laws which will become effective in February 2006 as too close for comfort. While the new laws exclude Venture Capitals and Private Equity funds, many worry that the rationaleused by SEC to establish such laws may also be used in future to force Venture Capitals and Private Equity Funds to comply with the provisions.
Part of the SEC�s reason for introducing the hedge fund regulation law is based on the growing Institutional Investor�s interest in hedge funds. According to the SEC, the growing hedge fund assets include pension fund assets of ordinary citizens, and could no longer be ignored. William Donaldson argued that regulation of hedge funds is needed to safeguard the interests of the public. Venture Capitals fear that similar argument could be made in favor of including them into the regulatory drag net of the SEC since Pension funds, foundations and university endowments have also long been venture capital fund investors.
The National Venture Capital Association Trade Group in one of its comment letters to the SEC wrote, “We are concerned with the (SEC’s) implication that involvement of these investors with hedge funds is a significant fact in justifying additional SEC regulation. We do not question the sitting commission’s intent to leave the current regulatory regime in place for venture capital and private equity; however, we know that regulation has a tendency to grow and that only Congress has the power to bind future commissions.”
The SEC stated that Venture Capitals �are similar to hedge funds in some respects, but the Commission has not encountered significant enforcement problems with advisers with respect to their management of private equity or venture capital funds.” While the SEC law excludes Venture Capitals currently, no one knows for certain what may happen in the years to come.
One of the main differences between hedge funds and Venture Capitals is that hedge funds, according to the SEC, allow investors to redeem investments in the funds within two years of purchasing them, while �Venture Capitals investments in private equity funds are typically long-term and end in liquidation at the end of a specified term.�
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: [email protected]
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