SEC Enforcement Division To Focus On Hedge Funds That Outperform The Market

SEC Enforcement is now focusing on hedge funds that outperform “market indexes by 3% and [are] doing it on a steady basis.” Khuzami referred to such performance as “aberrational,” and stated that Enforcement is “canvassing all hedge funds” for such “aberrational performance.”

This initiative raises a number of questions. For example, should skilled portfolio managers (and their investors) bear the burden and costs of an SEC investigation just because they have returned more than the market? Moreover, how and why did the Enforcement Division determine to set the threshold at three percent? Is this threshold appropriate and does it reflect “aberrational” performance, like Khuzami suggests?

SEC Enforcement Division To Focus On Hedge Funds That Outperform The Market — McDermott Will & Emery

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