Moving Beyond the Clamor for 'Hedge Fund Regulation': A Reconsideration of 'Client' Under the Investment Advisers Act of 1940

Abstract:     
Under current doctrine, an investment adviser managing a hedge fund or other private fund may consider the fund - rather than any investor in the fund - as the adviser’s “client” for purposes of, among other things, compliance with the Investment Advisers Act of 1940, as amended. That interpretation, which has informed recent cases relating to investment adviser regulation is, in part, a product of the fact that the fund is the direct recipient of the adviser’s investment advice. It has implications regarding, among other things, the subject of the adviser’s fiduciary duties and the adviser’s compliance with the Advisers Act and other laws and regulations governing investment advisers. This article argues that this doctrine is wrong and that, instead, the investors in a private fund should be regarded as the clients of the fund’s investment adviser(s).

Number of Pages in PDF File: 40

Keywords: Hedge Funds, Private Funds, Investment Advisers, Securities Regulation

Accepted Paper Series