Hedge Funds to Face Greater Regulation From SEC

Mary Schapiro, Chairman of the SEC, is expected to tell Congress today that the SEC is seeking greater regulation for hedge funds, according to the WSJ.

Though many hedge funds managers already register with the SEC, the new proposal would bring all or must funds under the SEC umbrella. They will also seek to regulate individual hedge funds, as opposed to current regulations on the greater fund company. Regulating individual funds would presumably provide greater transparency into the systemic risk posed by larger funds.

Of course, regulation by the SEC is very contentious. How well has the SEC been able to regulate any of the institutions it has primary oversight of? Given that there are several thousand hedge funds in the US, and the SEC's inability to effectively regulate in the past, couldn't greater oversight just be another disaster in waiting?

One of the dangers of SEC oversight is that it would seem to legitimize hedge funds for the typical investor, when in fact, many hedge fund strategies are inappropriate for all but institutions and select individuals. Though the SEC will disclaim having "approved" the fund or its accounting, it will imply this to less sophisticated investors. Will any of them read the 250 page prospectus each fund will be forced to issue?

No comments: