Is SEC Registration Costly for Private Fund Advisers?
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Abstract: Do private fund advisers bear the cost of complying with regulatory requirements? Although complying with regulations certainly consumes time and resources, advisers may be able to pass compliance costs on to their investors. Alternatively, submitting to government oversight may provide advisers with offsetting benefits. In this paper, I test whether private fund advisers bear higher compliance costs when they register with the SEC compared to when they claim an exemption by measuring their “bunching” beneath an assets under management threshold that triggers mandatory registration. I find that advisers bear a non-negligible share of registration costs, but the registration costs they bear are relatively low (approximately 1.2% of annual profits). I also find that registration is about twice as costly for private equity fund advisers as it is for hedge fund advisers. Finally, I show that the fraction of advisers who “bunch” to avoid registration has increased over time even though the cost to advisers of registering has stayed consistent.