From the September 01, 2010 issue of Futures Magazine • Subscribe!

Don't Bet Your House

The Dodd-Frank Wall Street Reform and Consumer Protection Act has many moving parts most of which will not go into affect until one year after the bill was signed but there is one provision -- important to many hedge fund advisors and investors -- that went into affect immediately.

According to Law firm Pillsbury, Dodd-Frank mandates that immediately upon enactment the net value of an investor’s primary residence will be excluded from the accredited investor calculation. This could dramatic alter the size of the pool of individual investors qualified to invest in hedge funds.

Currently the definition allows any natural person whose individual net worth or joint net worth with that person’s spouse, at the time of purchase, exceeds $1 million or who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income levels in the next year.

That definition has been criticized over the years because it has not changed from when it was set in the early 1980s and some critics have argued the affect of inflation has altered the definition to include retail. The Managed Funds Association (MFA) when it was fighting hedge fund registration several years ago had suggested making the accredited investorÊmore stringent in lieu of registration. It also suggested adjusting it for inflation.

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