Subject: File No. S7-30-04
From: Gregg D Caplitz

August 9, 2004

I am affiliated with an SEC registered advisor. We now routinely see affluent clients approched by hedge funds, particularly elderly clients. We have had two clients give approximatly 8 million to a hedge fund. The hedge fund operator does not maintain client assets in a segregated account. The manager does not have errors and ommissions insurance. He cannot provide certified proof of his investment returns. Yet, he has convinced these investors, both over the age of 75 that he will make them wealthy. He has told one client that if he gives him the rest of his assets of approximatly 15,000,000 he will make him a billionaire. Hedge funds have no one monitoring their marketing activity. At one time, hedge funds were only offered to extremely wealthy and sophisticated investors who were, to a large part, capable of understanding the risk. Most hedge fund managers had lengthy track records at major investment firms. Today this is untrue. The manager of the hedge fund I discussed is a retired Naval officer whose only expertise was with computer programs. He created a trading program and then backtested the results. For this expertise investors pay 2 per year and 10 of profits along with trading cost. Our typical fee on acounts of that size is.34 and we incur trading costs. Hedge funds need to be subject to the same rules of disclosure as are RIAs. If the SEC is rightly concerned with fees and transparancy in the mutual fund arena how can they allow hedge funds to be totally unregulated. Regulation should and would protect these elderly investors from themselves. Hedge funds should be forced to maintain custodial accounts, have audited returns prepared by public accounting firms and meet the other normal standards for protecting client assets from fidelity risk. Clients can make informed decisions only if hedge fund operators have minimum disclosure requirements similar to non-public investment such as Reg D real estate and stock placement. Hedge funds should give potential investors an offering memorandum containing minimum disclosure of risks and track record as well as fee, costs and conflicts of interest. This does not happen today.