Prior to the enactment of the Dodd-Frank Act, Section 205 of the Investment Advisers Act of 1940 prohibited the receipt of performance compensation by an investment adviser unless the adviser was exempt from registration under Section 203(b) of the Advisers Act. Performance compensation is compensation based on the capital gains or capital appreciation in a client’s account. Performance compensation has been a common component of hedge fund manager compensation.
Please see full publication below for more information.