Subject: File No. S7-25-06
From: Frank J. Sattler
Affiliation: President Sattler Consultants, Inc.

January 27, 2007

I could not say this any better.

1. Is it appropriate?

The premise of Modern Portfolio Theory is that you can smooth out the returns and decrease the risk of an investment portfolio by adding noncorrelated investment asset classes, even if those individual classes are individually highly volatile. Many hedge funds' styles, by any reasonable assessment, are highly uncorrelated with the stock and bond markets. High-net-worth individuals and institutions are taking advantage of this fact by diversifying a part of their portfolios into hedge funds. This reasonable diversification should be made available to smaller investors as well.

No one would suggest that all or even a significant proportion of an investor's portfolio should be in hedge funds. But a reasonable diversification is appropriate.

There is no real reason to believe that smaller investors cannot understand hedge fund strategies, if properly explained. If investors can be assumed to understand the risks involved with individual US stocks, foreign stocks, commodity futures, currencies, options, mutual funds, and real estate, not to mention a host of Reg D limited partnerships, then how can anyone suggest that hedge fund strategies are beyond the ken of investors?

I would suggest that investors can understand quite readily the logic and value of hedging the interest-rate directional risk from a bond fund, or pairing undervalued and overvalued stocks, or hedging a convertible bond. While management competence is the real issue investors should focus on, how difficult is it to understand the concept behind buying undervalued assets in a distressed debt fund?

A hedge fund is a business, generally with a straightforward premise. It is no more, and often far less, difficult to understand than the business risks and plans of typical US-based company (to say nothing of a bio-tech or high-tech firm or international company) than the risks and concepts of a typical hedge fund.

2. Is it the right thing to do?

Most hedge funds have an offshore version with lower minimums. The reality is that investors from Botswana have more and better investment choices than do average US citizens from Boston, Massachusetts.

If you ask the brokers and investment advisors on the front lines of serving the public whether they wish they had access to hedge funds on behalf of their clients during the difficult stock markets of 2000-2002, the answer would be a resounding yes. If you ask investors whether they should be able to make their own decisions - to have the same choices as the rich - the answer would also be yes.

The only people who benefit from limiting investor choice are those who have a vested interest in not facing the competition from hedge funds. As they seek to protect their turf, they have lost sight of the interests of those they should be serving.

Those who oppose allowing average investors to have the same choices as the rich should tell us why lower-net-worth investors are less intelligent or are deserving of fewer options than the rich. They should show why average investors should only be allowed funds which are one-way bets on an uncertain future.

I believe that investors would tell you that not allowing them the same choices as the rich is the type of government protection they do not need.

3. Is it fair and just?

With all the proper regulatory scrutiny being devoted to hedge funds, with the concern of hedge funds that such activities could restrict their investment options and business, it would behoove us to remember the small investor, who is not even allowed a hedge fund crumb from the rich man's table. The focus of future regulation should be to make sure there is an honest game on an even playing field, not to exclude certain classes of citizens.

Equal Choice, Equal Access, Equal Opportunity

If you were to tell investors that they would be discriminated against because of their gender or race or sexual preference, there would be an outcry. To put it simply: it is a matter of Choice. It is a matter of Equal Access. It is a matter of Equal Opportunity. Congress should change the rules and allow all investors to be truly equal, at least as to opportunity.

I believe it is time to change a system where 95% (and maybe soon to be almost 99%) of Americans are relegated to second-class status based solely on their income and wealth and not on their abilities. It is simply wrong to deny a person equal opportunity and access to what many feel are the best managers in the world, based upon old rules designed for a different time and different purpose. I hope that someday Congress will see to it that small investors are invited to sit at the table as equals with the rich.

How about making things fair?