With Financial Bill Looming, What is Impact for Hedge Funds?

The largest financial reform bill in more than 70 years is expected to pass this week and many are asking what impact the bill will have on hedge funds. The impact of the Dodd-Frank bill—named on the hedge fund industry, remains an open question. The legislation is more than 2300 pages, and even a thorough reading won't reveal the ultimate impact of such a bill on hedge funds.

As the current bill reads, hedge funds would face some greater oversight. Hedge funds with more than $150 million in AUM would have to register with the SEC, though more than half of hedge funds are already registered.

One also has to wonder how the SEC, which so miserably failed to oversee the hedge funds and financial institutions it already regulates, will be able to provide competent oversight of even more firms. If the SEC couldn't devote the resources to police banks with trillions in assets, how can we expect them to competently oversee $200 million hedge funds?

The new bill would also introduce a water-down Volker rule which will permit bank holding companies to invest up to 3% of their assets in hedge funds and other alternative investments.

SEC Wants Greater Hedge Fund Authority

Schapiro Seeks Larger Staff, Greater Regulatory Control, for Hedge Funds
SEC Chairman Mary Schapiro said today that the SEC "needs" the authority to require hedge funds to register with the agency. Additionally, Schapiro wants the SEC to have the power to examine hedge funds' book. Schapiro also noted that registration without significant oversight and authority "would not be sufficient". "It would be good to have rulemaking authority," she said. "It's good to have flexibility to respond to crises as they emerge."

Schapiro also wants additional funding to provide adequate hedge fund oversight. "With over 30,000 regulated entities and a staff of 3,600 people, we cannot add a couple thousand more hedge funds and get the job done under any circumstance," she said.