This year we have seen some very high profile Hedge Fund managers announce the closing of their funds, primarily due to new excessive regulation coming out of Dodd-Frank. I want to preface this with the fact that this is a dismal year for many funds’ performance.

Regulators in the US have developed numerous new rules and regulations that will take effect this year and into early 2012. This June, the Securities and Exchange Commission adopted rules that require advisers to hedge funds to register with the SEC, and establish new exemptions for SEC registration and reporting requirements for certain advisers, and reallocate regulatory responsibility for advisers between the SEC and states. Registration must be done by March of 2012.

This and other new regulation requirements that are born out of Dodd-Frank have led the most well-known fund manager, George Soros, to close his 40 year old flagship fund, Quantum Endowment Fund. The Soros family will return all investor funds and operate as a family office. Although Quantum fund is down an estimated 6% this year, as many funds are, their investors have enjoyed an average 20% annual return for over 40 years. Soros has cited new financial regulations as forcing them to close the fund to outside investors.

Soros is only one of many who have decided to close their funds. Stanley Druckenmiller announced he will close his fund, Duquesne Capital Management. Again, they have had a very poor 2011 thus far, but I suspect from my experience with many of the managers, the new regulation is either the sole reason, or the impetus to go to the extreme of closing the funds.

Some funds have made large top management changes rather than choosing to close entirlely. James Simons of Renaissance Technologies stepped down. Bruce Kovner, the founder of Caxton Associates, recently announced he was stepping down after 30 years. Campbell & Company’s chief executive, Terri Becks, announced that she would step down.

These are just a sample of the titans in the industry which have made radical changes due to the changing environment that, in great part, is due to Dodd-Frank. There are many smaller funds which have to close due to the financial effects of all the additional regulation. This will continue to affect fund managers going forward.

This does provide some opportunities for existing fund managers. There are now far greater assets chasing fewer managers. This is a rich opportunity for managers with decent returns this year. Equity returns are negative this year. Yields on global interest rates are not attractive from an investment standpoint.

This year has proven to be one of the toughest years for many fund managers. If the 4^th quarter of 2011 does not improve, the looming deadline of March of 2012 will prove to be a death sentence for many more funds.

Steve Michael is co-founder of Stonehenge Asset Management

Smichael@stonehengeam.com

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