Hedge funds, in general, resisted the SEC’s move to increase the number of hedge funds that are required to register with the SEC. This is due in part to the increased costs needed to comply with the new rules.

In an electronic world e-mails (and IMs) have become an important part of any investment firm’s communications. Marietta Cauchi in the Wall Street Journal notes many hedge funds have had to install new systems to capture e-mails so as to comply with record retention rules. While there is still some dispute as to what needs to be retained, some sort of system needs to be put into place.

Emma Trincal at TheStreet.com notes that the deadline for hedge funds to register with the SEC has passed. Given the costs of compliance a number of large hedge funds have altered the terms of their funds so they can bypass registration.

Nary a day goes by without another hedge fund coming under investigation. Anita Rhagavan in the Wall Street Journal reports the FSA is investigating the actions of a trader at GLG Partners.

Some would argue that any upstanding hedge fund would already have these compliance systems in place. While that might be true, the SEC’s specifications may differ markedly from a firm’s existing internal processes. Sarbanes-Oxley forced many corporations to revamp their internal controls. A side effect of Sarbox has been that many smaller corporations have been forced to look into going private because the costs of compliance exceed the benefits of staying public. Don’t be surprised if we see some smaller hedge funds either closing shop or changing their charters to avoid the reach of the SEC’s new rules and regulations.

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