Subject: File No. S7-25-06
From: Charles E Stalmack

January 26, 2007

In regards to altering the definition of accredited investors:

I think that many people would have a hard time explaining how someone worth $2.5 million is more knowledgeable about investing than someone worth $1 million. While I wouldn't consider myself a conspiracy theorist, I must say that the proposed change is morally worrisome.

Anyone who is even remotely familiar with what hedge funds do is aware of the fact that they primarily make their gains by exploiting market inefficiencies. The problem comes in when there is too much money chasing too few opportunities. This tends to diminish returns in the hedge fund industry.

The proposed changes are a phenomenal way of reducing the money that chases market inefficiencies. This should help increase profit potential for hedge funds and a small group of Americans. Unfortunately, these increased gains will benefit the people who need them the least.


If this legislation is enacted, I believe there should be Intelligence Quotient (IQ) restrictions on government officials. (Lets say, only the top 1% of the smartest people in the nation can hold government positions.) Obviously, we only want the smartest people in the country to run it.

We live in a different world than we did in 1982. Between CNBC, the internet and books about hedge funds; they have become the subjects of many conversations. Indeed, it is often the WELL PUBLICIZED "blow ups" and "melt downs" that people talk about. So if the press is typically negatively-biased, it would make one wonder why someone would ever want to invest in a hedge fund. My guess is a higher Sharpe Ratio. But what do I know about investing?

I dont like when people complain, and dont propose solutions. So consider this:
Lets start with baby steps. Leave the accredited investor credentials right where they are at. This will gradually give more people access to hedge funds. And it will do it over a long period of time.
And in regards to "funds of funds": Require that they truly hold a diversified portfolio of hedge fund investments. Then, make the "funds of funds" available to ALL investors. I think this would prove to be equitable for everyone.

And if too much money chases too few opportunities, returns will go down. People will remove assets from the hedge fund industry.
The markets will figure it out.