Volcker Rule Permits Bank-sponsored Hedge Fund Access Platforms

Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (which embodies the so-called Volcker Rule) will impose significant limits on the ability of banks and their affiliates (each, a "banking entity" or "BE") to engage in proprietary trading and to own or sponsor hedge funds when it comes into effect in July of 2012.* Nonetheless, while the headlines about the Volcker Rule have focused consistently on the details of those limitations, there are many current U.S. bank activities with respect to hedge funds that will still be permitted under the Volcker Rule. These permitted activities include offering customers access to third-party hedge funds via dedicated feeder funds (or dedicated stand-alone funds). Under the new regulatory regime, however, it will be more difficult for a BE to organize and seed a hedge fund than it will be to merely act as an advisor, and both activities will be subject to significantly greater compliance burdens and