California’s Department of Corporations has decided not to proceed with a proposal that would have required hedge fund managers to register with the state. In September 2007, the department proposed to revoke an exemption from licensing for investment advisers with fewer than 15 clients and more than $25 million in assets under management that are not voluntarily registered with the SEC. Revocation of the exemption would have subjected most hedge fund managers to state oversight that, in certain circumstances, would have included capital requirements and providing financial statements to the state.

The proposal was met with strong opposition from California’s hedge fund industry, one of the largest outside of New York and Connecticut, including warnings from some in the industry that the many hedge funds could move to another state to avoid registration. In a May 1, 2008 statement, the California Commissioner stated that the department was “withdrawing the regulations due to an ongoing parallel process at the federal level which may pre-empt or obviate the need for state action at this time.”