Lookin’ Out for the Little Guy
December 20th, 2006 by Buck Woodford
The SEC has apparently run out of corporate crooks to catch, because they are focused once again on regulating the hedge fund industry. After their last attempt failed, they are taking a new angle: limiting investor participation by raising the minimum net worth level.
This would unfortunately affect Teewinot Asset Management, even though we do not manage a hedge fund. Because we charge performance fees on our aggressive accounts — typically 20% of the profits generated — those clients must be accredited investors, per state & SEC laws.
As a non-institutional manager, my universe of prospects would certainly shrink.. and I’ve yet to hear of any “grandfather clause” for existing clients. Ideally, if a change is made, such language is included — and I’d already opened accounts for my best contacts in the $1-2.5 mil net worth segment.
The good news is that existing investors will be grandfathered in, so don’t worry about the guys you already have on the roster.
Although I don’t like anything that would hurt Teewinot (or generally increase the gubment’s ever-expanding reach), I see the sense of raising the limits from their previous levels. Under the old system, anyone who had a net worth of a million bucks (maybe 1.5), including the value of their home, and an annual income of $200K+ qualified. With the recent run up in the real estate market, that left a lot of new and mostly unsophisticated investors in what is meant to be the rarefied air of unregulated investing. And for every Teewinot offering a steady hand and ethical behaviour, there is a fraudster or Amaranth leveraging their natural-gas-filled face off. There are a lot of people out there with property worth a million bucks who don’t know the difference. Those folks need some protection, whether they know it or not.
(Of course, I wouldn’t have raised the limits as much as the SEC did, but I digress.)
That is great news, Rem.. where did you hear about this existing investor thing?
You are in this line of work, so I don’t doubt you!
One thing I don’t understand is when Accredited Investor status is required for buying units in an LLC that’s not a hedge fund. My pops’ investment in Lux Capital had such a requirement.. and ours together in (gasp) Annex Records I think even required it.
Must I sign up multi-millionaires to back my hot dog stand if I don’t have the capital? (ie. “sell them private securities” that meet “exemption 504-something”)
WTF?