The long arm of American law is reaching halfway around the world in an attempt to control a secretive but rapidly expanding area of the investment industry.
A new rule by the United States Securities and Exchange Commission came into effect on Wednesday requiring hedge fund managers to register with the regulator so it can monitor the more than US$1 trillion industry which has until now been largely unregulated in the US.
While US funds with less than US$30 million under management are not required to register, foreign funds, such as those operating from Hong Kong, must register if they have 15 or more US-based investors, regardless of how much money the manager is responsible for.
Hedge fund managers say the new rule will raise their management costs and that funds based in places such as Hong Kong or Britain, where regulators already monitor managers operating in their jurisdictions, should be exempt.
'These funds are already registered in Hong Kong and I think most people would view Hong Kong as on par with other well-regarded regulators. In that regard, people find the philosophy a little hard to stomach,' said Christophe Lee Kin-ping, chief executive of SHK Fund Management and chairman of the Hong Kong chapter of the Alternative Investment Management Association.
'It's more work, more time and more fees for lawyers.'
Rising interest from retail investors, hedge funds' growing clout in global capital markets and fears that they could be used for money laundering are forcing regulators to lay down the law.