Subject: File No. S7-25-06
From: Peter Clark, Ph.D.

February 9, 2007

Simply put, increased constraints on markets lead to lower efficiencies in those markets. While it is understandable that as a society we would like to protect uninformed investors from crippling financial losses, arbitrary wealth limits cannot serve as a reliably proxy for investor sophistication. The proposed rule only entrenches the largest funds while limiting the ability for innovating newcomers to enter the market (potentially depriving the market of their marginal enhancements to its efficiency).

Unethical brokers hawking publically-traded (but highly risky) penny stocks are not required to screen their call list by net worth. In fact, they face no restrictions whatsoever in marketing to the general public investments with much greater risk than hedge funds. Hedge funds already have constraints on their marketing activities, with the result that they essentially have to be "discovered" by their clients. This single constraint provides the best insurance that only qualified investors can invest in hedge funds - hedge fund limited partners need to actively seek out their investments.

A better use of the SEC's time and energy would be to find innovative approaches to increase hedge fund transparency without stifling innovation and erecting arbitrary barriers to entry.