The Regulation of Private Equity, Hedge Funds, and State Funds

Overview-Hedge Fund.(1) In current usage in the United States, the concept of "hedge fund" is now reasonably settled. A hedge fund is a managed pool of capital that would be an "investment company" under section 3(a) of the Investment Company Act of 1940 (ICA) but for the limited number and wealth characteristics of the owners of the interests in the pool.(2) The ICA regulates most aspects of investment companies' management and operation. Except for registered hedge funds,(3) hedge funds are exempt from ICA regulation. It is this absence of ICA regulation, and accompanying Investment Advisers Act (IAA) regulation for the funds' investment advisers,(4) that defines the hedge fund rather than any set of regulations applicable to the fund.