We previously discussed the SEC’s adoption of new rules with respect to exemptions from investment adviser registration.  The new rules replace the old “private adviser exemption” with a new set of exemptions.  One of the new exemptions—actually an exception from the definition of “investment adviser”—is for entities that are “family offices” as defined in the new rules.

Bloomberg reported last week that George Soros is returning money to outside investors in his $25.5 billion hedge fund.  Soros is making the move so the firm will qualify as a family office and not be subject to SEC registration beginning in March 2012.  Although, as The Wall Street Journal noted, Soros helped “pioneer the modern hedge fund,” outside investors represent only a small percentage of his own firm today.

The Soros move highlights the potential impact of the change in registration requirements, which was dictated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

OUR TAKE:  The new requirements impose registration on a larger number of previously exempt advisory firms.  A traditional hedge fund—built on a model of attracting outside investors—would not consider a family office as a viable alternative to avoid registration.  However, there are large, “captive” hedge funds with minority outside investors that, like the Soros entity, have already made the move or may consider becoming only a “family office.”