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CAIA Level II: Advanced Core Topics in Alternative Investments, 2nd Edition by CAIA Association

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39.2 REGISTRATION AND REGULATION IN THE UNITED STATES

SEC or state registration: A hedge fund manager who is unable (or chooses not) to rely on a registration exemption must register as an investment adviser with either a state commissions agency or the SEC. The amount of assets an investment adviser has under management will determine whether the adviser must register with the SEC or one or more states. This calculation of assets is referred to as regulatory assets under management (RAUM) and differs from the calculation of assets under management (AUM) made in Form ADV 2A, which is a disclosure document made available or given to clients. RAUM is defined as the securities portfolio (i.e., a portfolio in which at least 50% of the total value consists of securities, cash, and cash equivalents) to which the adviser provides continuous and regular supervisory or management services. The securities portfolio includes proprietary assets, assets managed for no compensation, and assets of foreign clients.

Under the Dodd-Frank Act, hedge fund managers must now use the following guidelines to determine whether and with which government agency they must register:3

Register with the SEC Register with a state commission
Manages hedge funds whose AUM is between $25 million and $100 million and maintains a principal office and place of business in a state that does not require the registration of investment advisers Manages hedge funds whose AUM is between $25 million and $100 million ...

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