WEST PALM BEACH, (HEDGECO.NET) – For sometime now, this column has argued that hedge funds should be left alone to continue to manage its own affairs without burdensome governmental interference.Last week the bitterly divided SEC Commissioners voted 3-2 to move ahead with its proposal to subject the US hedge funds to its regulatory mandate. Its final vote on the matter would be undertakenafter the 60-day period in which the general public can make comments on such issue.<\/p>\n
The narrow margin of victory in the first round tends to portray the increasing and mounting resistance of such measures from not only the hedge fund industry, but also from individuals not affiliated with the hedge fund industry.<\/p>\n
SEC Chairman William Donaldson based his support for such measures on three issues, he cited the role of hedge funds in mutual fund trading abuses and is worried that there are, almost total lack of information, about such basic facts as how many hedge funds operate in the United States. The SEC Chairman also cited the fact that increasing numbers of US Pension plans are getting exposed to hedge fund strategies, such ordinary persons deserve to be protected according to Donaldson.<\/p>\n
On the first issue dealing with the involvement of hedge funds in the mutual fund trading scandals, SEC\u00c3\u00af\u00c2\u00bf\u00c2\u00bds regulation of hedge funds could not have prevented such scandal. Only a handful of hedge funds are accused of being involved in the mutual fund illegal trading scandals, the prevailing US laws could be used to prosecute such hedge fund companies alleged to be involved in such scandal. There are existing laws in the books under which such allegations could be prosecuted, what is lacking here is the ability of the SEC to act quickly to resolve such allegations.<\/p>\n
The second point made by the SEC Chairman for the need of hedge funds to be regulated points to an almost total lack of information about hedge funds and their methods of operation. Well, it should be pointed out to the Chairman that there is abundant information on hedge funds and their operating methods. General information on hedge funds and their methods of operation can be found in thousands of published books and journal articles addressing such matter.<\/p>\n
Specific information about individual hedge funds is provided through the increased transparency provisions offered by such managers. Such information is now widely available over the Internet on hedge fund information portals such as Hedgeco.net, and many others. Therefore, the Chairman\u00c3\u00af\u00c2\u00bf\u00c2\u00bds assertions about lack of information about hedge funds are without merit. This case could have been made ten years ago prior to the era of Long Term Capital Management.<\/p>\n
Today, much is known about hedge funds and their methods of operation. According to published reports, over 40% of US based hedge fund managers have voluntarily registered their firms with the SEC. Chairman Donaldson could learn everything he wants to know about hedge funds by examining records of these companies. These allegations of a total lack of information about hedge funds are no longer valid, and could not be used to justify hedge fund regulation proposals.<\/p>\n
The SEC Chairman also talked about increasing numbers of US pension funds investing with hedge fund managers as another reason justifying his regulatory initiatives. Such statement tends to undermine the intelligence and potentials of pension fund leaders who have some of the best money managers available in the markets.<\/p>\n
Pension fund leaders have advanced skills and knowledge about hedge fund investment strategies, and have always consulted with their boards for approval for such investments. For instance, Mark Anson, the Chief Investment Officer of the California Public Employees Retirement System is considered one of the brightest Pension fund managers in the US. Anson said he is concerned over the SEC\u00c3\u00af\u00c2\u00bf\u00c2\u00bds hedge fund regulation proposals. Anson also said such measure \u00c3\u00af\u00c2\u00bf\u00c2\u00bdcould reduce investment returns and drive funds offshore\u00c3\u00af\u00c2\u00bf\u00c2\u00bd. According to published reports, Cal PERS has made a windfall profit from its hedge fund investments. The pension fund manager invested US$750 million about 3 years ago and such investment now stands at US$877 million.<\/p>\n
In addition, only a small percentage of pension fund portfolios are devoted to hedge fund strategies, generally in the range of 5-10%, and sometimes smaller. Besides, hedge funds have contributed positively to the healthy gains posted by many US pension funds investing with such managers.<\/p>\n
A Washington Post article best sums it up this way; \u00c3\u00af\u00c2\u00bf\u00c2\u00bdBut pension plans and endowments hire advisers to tell them what to do with their money: They should be able to look after their own interests. Mutual funds offering access to hedge funds are more troubling. But it would be better to impose high minimum-investment limits on those rather than saddling the SEC with a whole new regulatory responsibility for a formidably complex product. The time may come when the challenge of regulating hedge funds may appear worthwhile. But right now the SEC is already facing a large expansion in its responsibilities. This is not the right moment.\u00c3\u00af\u00c2\u00bf\u00c2\u00bd The article concluded.<\/p>\n
One of the SEC Commissioners, Cynthia A. Glassman who voted against such proposal called the plan “Premature . . . and another example of form over substance” according to her. The second Commissioner, Paul S. Atkins who also voted against such proposal said “I will not ask taxpayers to foot the bill for a fishing expedition carried out to protect the very rich,” Commissioner Paul S. Atkins said. Both Commissioners rightly said SEC\u00c3\u00af\u00c2\u00bf\u00c2\u00bds efforts should be fully dedicated to protecting the over 95 million ordinary Americans investing with mutual fund managers.<\/p>\n
Some hedge fund industry participants including Citadel Investment Group and Kynikos Associates, in addition to the hedge fund community’s trade associations, went to Washington July 16 to protest the Securities and Exchange Commission’s new initiatives. Representatives of the group told the Senate Banking Committee that the SEC’s proposed rule to require hedge funds to register, “will adversely impact an industry that makes significant contributions to the strength, liquidity and efficiency of our capital markets,\u00c3\u00af\u00c2\u00bf\u00c2\u00bd according to the spokesman Adam Cooper, the chairman of the Managed Funds Association.<\/p>\n
The SEC has admitted that the agency lacks adequate staff to fully discharge its duties of policing the US financial market participants. Taking on additional responsibilities in view of such problem is invariably going to make the agency\u00c3\u00af\u00c2\u00bf\u00c2\u00bds work even more difficult, and its goals unattainable<\/p>\n
This column is typically only available to registered users of HedgeCo.Net, however we felt it was important enough to let everyone access the story.<\/b><\/p>\n Source: Paul Oranika <\/font><\/font><\/font><\/span><\/font> <\/p>\n Editor-in-Chief<\/font><\/font><\/span><\/font> <\/p>\n Hedgeco.Net<\/font><\/font><\/font><\/span><\/font> <\/p>\n Paul is author of new book: “Hedge Funds: Investment Vehicles for the global economy, what investors must know about them.”<\/em><\/strong> You can purchase the book through Amazon.com by<\/font> CLICKING HERE<\/font><\/a> <\/font>or by calling our office at 1-877-HEDGECO.<\/font><\/span><\/font><\/font> <\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":" WEST PALM BEACH, (HEDGECO.NET) – For sometime now, this column has argued that hedge funds should be left alone to continue to manage its own affairs without burdensome governmental interference.Last week the bitterly divided SEC Commissioners voted 3-2 to move […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-2639","post","type-post","status-publish","format-standard","hentry","category-hedgeco-news"],"_links":{"self":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/2639","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/comments?post=2639"}],"version-history":[{"count":0,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/2639\/revisions"}],"wp:attachment":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/media?parent=2639"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/categories?post=2639"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/tags?post=2639"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}