Plan to further restrict hedge funds stirs backlash

A Securities and Exchange Commission proposal to sharply limit the number of Americans who can invest in hedge funds has triggered a public backlash -- and the latest controversy over the booming private investment pools.

The SEC has received hundreds of e-mails and letters since December, when it proposed raising the bar for eligibility for the first time since 1982.

The vast majority of those writing have advised the SEC to back off. Some comments have an angry tone, unusual for matters of securities regulation.

"This has got to be unconstitutional if not communistic," wrote M. Joan Conrad, of Naples, Fla.

The commission proposed limiting participation in the largely secretive and unregulated investment vehicles to investors who have a minimum of $2.5 million in investable assets, excluding the value of their primary residence. Currently, investors must have at least $1 million in net worth, including real estate, or earn at least $200,000 a year.

The change would restrict hedge funds to 1.3 percent of US households, down from 8.5 percent currently, according to the SEC.

Chairman Christopher Cox said tighter standards would do a better job of limiting the funds to people who have the necessary "knowledge and sophistication" to be in the pools.

There are more than 9,000 hedge funds holding a total of $1.4 trillion in assets, according to Hedge Fund Research Inc. They have become popular with wealthy individuals as well as pension funds and other institutional investors looking to earn higher returns than on plain-vanilla investing.