On Monday, European Lawmakers chose to delay voting on new hedge fund rules that would prevent investors from investing with offshore hedge funds in tax havens. The vote will now be held May 17, 2010
Last year, The Group of 20 Nations developed the Alternative Investment Fund Managers Directive which forces hedge funds outside of the EU to comply with certain guidelines before gaining access to European investors.
According to Clifford Chance LLP's Simon Gleeson, the new rules could force hedge funds out of the UK and "to the U.S., although some to Switzerland and a few to real offshore centers."
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Showing posts with label hedge fund regulation. Show all posts
Showing posts with label hedge fund regulation. Show all posts
8.12.2009
The Future of Hedge Fund Regulation - US
The Future of Hedge Fund Regulation - US
Summary
Over the last couple of years there has been a lot of political discourse about the need for greater regulation of the financial industry, including hedge funds. Much of the information (and rumors) about possible hedge fund regulation is somewhat contradictory. We will wade through the debate and provide a summary of current proposals for hedge fund regulation in the US and discuss hedge fund regulation in the EU and other countries.
Though it was highly regulated financial institutions that are widely believed to be the cause of the recent financial crisis and subsequent economic malaise, there is talk of regulating hedge funds and private equity firms as well. There have been a huge number of proposals for regulating hedge funds ranging from registration requirements for just the largest to funds, to almost authoritarian regulation for all private money managers. However, the current proposals with the most support appear to be hedge fund registration requirements, without significant additional oversight.
Current Hedge Fund Regulations
Under the existing system hedge funds and private equity firms are far less regulated than mutual funds and other investment vehicles open to the public. Though some hedge funds are registered with the SEC, a couple clauses in the Investment Company Act of 1940 allow must hedge funds to operate without registering with the SEC or any other government agency. Probably fewer than half of all hedge funds are currently registered as investment advisors with the SEC. For funds that are registered, the SEC requires certain filings, but does not provide operational oversight.
The Need for Hedge Fund Regulation
Hedge funds were clearly not the major players in the current financial crisis. However, the $50 billion fraud perpetrated by Bernard Madoff sparked plenty of public outrage and there have been a couple of multi billion dollar hedge fund failures since 2007. Additionally, many politicians still fear another hedge fund collapse ala Long Term Capital Management, the giant hedge fund that collapsed in 1998 and necessitated a Federal Reserve orchestrated bailout.
Treasury Secretary Timothy Geithner voiced his concern in April, "Today, the consequences of (hedge funds') failure is greater. They need to be subject to a higher set of standards.”
Proposals for Regulating Hedge Funds and Recent Developments (2009)
In January 2009, Senators Charles Grassley (R-Iowa) and Carl Levin (D-Mich.) introduced the Hedge Fund Transparency Act of 2009. The Act would affect funds with more than $50 million in assets (“large firms”). All
funds in excess of $50 million would be required to register with the SEC and maintain books and records according to SEC requirements. It would also require disclosure of including information regarding the identity (including addresses) of the fund’s “beneficial owners,” the amount of the fund’s assets, the fund’s equity structure, affiliations the fund may have with other financial institutions, the minimum investment commitment required of investors, and the total number of investors. The bill did not get to a vote.
In March of 2009, Larry Summers , Director of the National Economic Council for Barack Obama, said the U.S. wants large hedge funds and private-equity firms to be subjected to "rigorous public scrutiny," compared with the minimal oversight they now face. Before joining the Obama Administration, Summers was a Managing Director with one of the worlds largest hedge funds, D.E. Shaw Group.
Then in late April, President Obama lashed out at hedge funds refusing to accept a government offer for Chrysler debt. "A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout," Obama said, "They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them."
In July, the Obama Administration, released TG-214, a fact sheet with the Administration’s proposals for regulating hedge funds. Funds with more than $30 million would be required to register with the SEC. Once registered funds would be subject to:
• Substantial regulatory reporting requirements with respect to the assets, leverage, and off-balance sheet exposure of their advised private funds
• Disclosure requirements to investors, creditors, and counterparties of their advised private funds
• Strong conflict-of-interest and anti-fraud prohibitions
• Robust SEC examination and enforcement authority and recordkeeping requirements
• Requirements to establish a comprehensive compliance program
The main rationale for the above requirements is to “protect the financial system from systemic risk”
The most recent House of Representatives proposal for hedge fund regulation, from Aug 6, 2009, seems to have lost some of the initial enthusiasm and would regulate hedge funds under less-stringent conditions than banks and lenders. According to House Financial Services Chairman, Barney Frank, “How can you regulate a hedge fund like a mortgage? It doesn’t make any sense. It will be a form appropriate to them.” In apparent moment of bipartisanship, both Democrats and Republicans seem to be in agreement that hedge fund and private equity firms should be more lightly regulated than other traditional financial firms. It should also be noted that hedge fund industry groups spent almost $4 million in lobbying in the first half of 2009.
Hedge Fund Regulation in Europe
Europe has been quicker to attempt hedge fund regulation and proposals there have generally been more severe than in the US. Likewise, hedge funds and private equity firms in the EU have been more vocal in their opposition to regulation than their US counterparts. The most contentious issue in EU hedge fund regulation appears to be an attempt to limit or place caps on the amount of leverage funds can employ. Because of the possibility of regulatory arbitrage, look for the EU and US to finalize regulations that are relatively consistent.
When Will We Get New Hedge Fund Regulations?
Though there are ongoing talks, there is currently no bill for hedge fund regulation in Congress that is likely to pass. It is unlikely any new regulation will be finalized until 2010. Because compliance with new rules could be costly and time consuming, it is conceivable that new hedge fund regulations might not be enforceable until 2011.
Summary
Over the last couple of years there has been a lot of political discourse about the need for greater regulation of the financial industry, including hedge funds. Much of the information (and rumors) about possible hedge fund regulation is somewhat contradictory. We will wade through the debate and provide a summary of current proposals for hedge fund regulation in the US and discuss hedge fund regulation in the EU and other countries.
Though it was highly regulated financial institutions that are widely believed to be the cause of the recent financial crisis and subsequent economic malaise, there is talk of regulating hedge funds and private equity firms as well. There have been a huge number of proposals for regulating hedge funds ranging from registration requirements for just the largest to funds, to almost authoritarian regulation for all private money managers. However, the current proposals with the most support appear to be hedge fund registration requirements, without significant additional oversight.
Current Hedge Fund Regulations
Under the existing system hedge funds and private equity firms are far less regulated than mutual funds and other investment vehicles open to the public. Though some hedge funds are registered with the SEC, a couple clauses in the Investment Company Act of 1940 allow must hedge funds to operate without registering with the SEC or any other government agency. Probably fewer than half of all hedge funds are currently registered as investment advisors with the SEC. For funds that are registered, the SEC requires certain filings, but does not provide operational oversight.
The Need for Hedge Fund Regulation
Hedge funds were clearly not the major players in the current financial crisis. However, the $50 billion fraud perpetrated by Bernard Madoff sparked plenty of public outrage and there have been a couple of multi billion dollar hedge fund failures since 2007. Additionally, many politicians still fear another hedge fund collapse ala Long Term Capital Management, the giant hedge fund that collapsed in 1998 and necessitated a Federal Reserve orchestrated bailout.
Treasury Secretary Timothy Geithner voiced his concern in April, "Today, the consequences of (hedge funds') failure is greater. They need to be subject to a higher set of standards.”
Proposals for Regulating Hedge Funds and Recent Developments (2009)
In January 2009, Senators Charles Grassley (R-Iowa) and Carl Levin (D-Mich.) introduced the Hedge Fund Transparency Act of 2009. The Act would affect funds with more than $50 million in assets (“large firms”). All
funds in excess of $50 million would be required to register with the SEC and maintain books and records according to SEC requirements. It would also require disclosure of including information regarding the identity (including addresses) of the fund’s “beneficial owners,” the amount of the fund’s assets, the fund’s equity structure, affiliations the fund may have with other financial institutions, the minimum investment commitment required of investors, and the total number of investors. The bill did not get to a vote.In March of 2009, Larry Summers , Director of the National Economic Council for Barack Obama, said the U.S. wants large hedge funds and private-equity firms to be subjected to "rigorous public scrutiny," compared with the minimal oversight they now face. Before joining the Obama Administration, Summers was a Managing Director with one of the worlds largest hedge funds, D.E. Shaw Group.
Then in late April, President Obama lashed out at hedge funds refusing to accept a government offer for Chrysler debt. "A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout," Obama said, "They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them."
In July, the Obama Administration, released TG-214, a fact sheet with the Administration’s proposals for regulating hedge funds. Funds with more than $30 million would be required to register with the SEC. Once registered funds would be subject to:
• Substantial regulatory reporting requirements with respect to the assets, leverage, and off-balance sheet exposure of their advised private funds
• Disclosure requirements to investors, creditors, and counterparties of their advised private funds
• Strong conflict-of-interest and anti-fraud prohibitions
• Robust SEC examination and enforcement authority and recordkeeping requirements
• Requirements to establish a comprehensive compliance program
The main rationale for the above requirements is to “protect the financial system from systemic risk”
The most recent House of Representatives proposal for hedge fund regulation, from Aug 6, 2009, seems to have lost some of the initial enthusiasm and would regulate hedge funds under less-stringent conditions than banks and lenders. According to House Financial Services Chairman, Barney Frank, “How can you regulate a hedge fund like a mortgage? It doesn’t make any sense. It will be a form appropriate to them.” In apparent moment of bipartisanship, both Democrats and Republicans seem to be in agreement that hedge fund and private equity firms should be more lightly regulated than other traditional financial firms. It should also be noted that hedge fund industry groups spent almost $4 million in lobbying in the first half of 2009.
Hedge Fund Regulation in Europe
Europe has been quicker to attempt hedge fund regulation and proposals there have generally been more severe than in the US. Likewise, hedge funds and private equity firms in the EU have been more vocal in their opposition to regulation than their US counterparts. The most contentious issue in EU hedge fund regulation appears to be an attempt to limit or place caps on the amount of leverage funds can employ. Because of the possibility of regulatory arbitrage, look for the EU and US to finalize regulations that are relatively consistent.
When Will We Get New Hedge Fund Regulations?
Though there are ongoing talks, there is currently no bill for hedge fund regulation in Congress that is likely to pass. It is unlikely any new regulation will be finalized until 2010. Because compliance with new rules could be costly and time consuming, it is conceivable that new hedge fund regulations might not be enforceable until 2011.
5.15.2009
Hedge Funds Skeptical of Uncle Sam
According to Reuters, many hedge fund managers are leery of US intervention in the capital markets, from banking bailouts to Chrysler and the automakers.
According to Sean Mathis of New Centurion Capital Partners,"When you have government intervention at the scale we have, you do something the markets abhor: you create uncertainty. We have uncertainty where markets are going and what the rules of the road will be."
Even more drastic are statements like those of Gary Kaminsky, former Managing Director at Neuberger Berman "You have to assume the government will be involved. You have to assume the free market is not as free as it was in the past and won't be for the next 20 years," Kaminsky said.
Of course what is not being said is that hedge funds have benefited from the bailout in countless ways. Many of the prime brokers to hedge funds could have been at risk had large financial institutions not received bailout money. Most hedge funds with a long-bias have also benefited from the massive injection of money into the system and the support of the financial sector.
According to Sean Mathis of New Centurion Capital Partners,"When you have government intervention at the scale we have, you do something the markets abhor: you create uncertainty. We have uncertainty where markets are going and what the rules of the road will be."
Even more drastic are statements like those of Gary Kaminsky, former Managing Director at Neuberger Berman "You have to assume the government will be involved. You have to assume the free market is not as free as it was in the past and won't be for the next 20 years," Kaminsky said.
Of course what is not being said is that hedge funds have benefited from the bailout in countless ways. Many of the prime brokers to hedge funds could have been at risk had large financial institutions not received bailout money. Most hedge funds with a long-bias have also benefited from the massive injection of money into the system and the support of the financial sector.
4.29.2009
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.
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.
European Union Imposes Hedge Fund Regulations
EU Imposes New Hedge Fund Regulations
The European Union is proposing new rules extending oversight for the European hedge fund industry which has close to $1 trillion in assets by some estimates. The European Commission Wednesday proposed new disclosure requirements for hedge funds and private equity firms managing more than EUR100 million in assets. Many had expected, upon release of an early draft, that the AUM cutoff for firms would be as high as EUR250 million. This cutoff means only 3% of funds (accounting for 10% of assets), will be regulated under the proposal.
Germany and France in recent years have railed against hedge funds while the U.K., home to Europe's largest financial center has taken the opposite position. Germany and France, for example, believe certain derivatives and other aspects of financial markets have evolved to become beyond regulators' understanding and oversight. The U.K. for their part, believes stricter regulations will only push hedge funds and other alternative managers to locales with less stringent requirements.
Under the plan, firms exceeding the cutoff will have to register with regulators and provide information on their holdings, fees and the amount of money they borrow to boost their potential returns.
The commission's proposal still needs approval from E.U. governments and the European Parliament. Officials expect continued argument about how to manage the sector.
The European Union is proposing new rules extending oversight for the European hedge fund industry which has close to $1 trillion in assets by some estimates. The European Commission Wednesday proposed new disclosure requirements for hedge funds and private equity firms managing more than EUR100 million in assets. Many had expected, upon release of an early draft, that the AUM cutoff for firms would be as high as EUR250 million. This cutoff means only 3% of funds (accounting for 10% of assets), will be regulated under the proposal.
Germany and France in recent years have railed against hedge funds while the U.K., home to Europe's largest financial center has taken the opposite position. Germany and France, for example, believe certain derivatives and other aspects of financial markets have evolved to become beyond regulators' understanding and oversight. The U.K. for their part, believes stricter regulations will only push hedge funds and other alternative managers to locales with less stringent requirements.
Under the plan, firms exceeding the cutoff will have to register with regulators and provide information on their holdings, fees and the amount of money they borrow to boost their potential returns.
The commission's proposal still needs approval from E.U. governments and the European Parliament. Officials expect continued argument about how to manage the sector.
4.13.2009
Why Hedge Funds are NOT "Too Big To Fail"
Relative to Other Financial Institutions, Hedge Funds are Actually "Too Small NOT To Fail"
Timothy Geithner and other public officials have argued that large hedge funds are "too big to fail". Their collapse, they argue, could have widespread systemic impacts on the global financial system. However, their are legitimate questions as to whether the argument that hedge funds are too big to fail has any credible weight. In fact, relative to their regulated counterparts such as banking and insurance giants, hedge funds are actually too small not to fail.
Why Hedge Funds Are NOT "To Big to Fail":
1. The largest hedge fund (Bridgewater at under $40 billion in AUM) has less than 2% of the assets of Citigroup (Citi had 2008 assets of $2.2 trillion).
- The entire hedge fund industry is estimated at about $1 trillion. By comparison, Citi had $1.1 trillion, in off-balance sheet assets alone. These off-balance SIVs often consisted of now toxic CDOs and other structured debt pools.
2. Hedge Funds Actually Operate with Less Leverage than Most Banks
- Here are the 2008 leverage ratios for the largest US Banks: Citigroup (19.2x), JP Morgan (12.7x), Wells Fargo (12x), Bank od America (11.7X).
- According to the Merrill Lynch Hedge Fund Manager Survey, 70% of hedge funds operated with less than 2x leverage in 2007. And 2007 was the most levered hedge funds had been in almost 10 years.
- Currently, the average hedge fund has net leverage of less than 1.
3. Hedge Fund Collapse Does Not Markedly Effect Broader Markets
- While a hedge fund collapse may have some detrimental effects on the financial markets in which the fund(s) operated, it is not likely to lead to widespread economic malaise.
- By contrast, the failure of a large bank leads to tens of thousands of job losses (at least 35,000 from B of A a lone), massive decreases in consumer and business lending, and general liquidity issues.
4. Hedge Fund Failures are Just a Blip Compared to Regulated Financial Institutions
- AIG losses in 2008 ($98 billion) were greater than all the hedge fund failures in history.
- At the time of Lehman's bankruptcy, it still declared $639 billion in assets. This represents assets equal to more than half of the entire hedge fund industry and more than 10x larger than Madoff's fund. If Lehman can be permitted to fail, what logical rationale could be proposed for bailing out a hedge fund?
Hedge funds are not too big to fail. The entire industry represents fewer assets than individual global banks. Additionally, protecting hedge funds from failure creates an unnecessary moral hazard. Funds might be encouraged to take more risk, particularly risks with systemic impact, if they feel their size and breadth makes them impervious to failure.
Unfortunately, we have recently created such a moral hazard with the bailout of banks. However, the impact of moral hazard was deemed modest in comparision to the potential failure of the entire economic system. Given the much slighter impact posed by hedge funds, considering hedge funds to be too big to fail carries negative implications as well.
This is not to say hedge fund regulation can't be helpful; it can. However, considering hedge funds to be as dangerous as massive financial institutions is purely asinine.
4.06.2009
Obama Adviser Received $5 Million from Hedge Funds in 2008
Obama Adviser Has Close Ties To Giant Hedge FundAccording to White House records released on Friday, Obama's top economic adviser, Lawrence Summers, received more than $5 million from a single hedge fund last year. The hedge fund making the payments was D.E. Shaw, one of the world's largest hedge funds. It should be noted that these payments come because Summers was recently a managing director at the firm.
Summers who is Chairman of the Council of Economic Advisers also received money from other financial institutions for speaking engagements including 67,500 from JP Morgan, $45,000 from Citigroup, $135,000 from Goldman Sachs and $67,500 from Lehman Brothers, all of whom run hedge funds of their own.
Summers is an integral part of Obama's economic team which is attempting to place additional regulations on hedge funds. It will be interesting to see how Summers' hedge fund background influences the administrations tactics and approach to regulating hedge funds.
3.26.2009
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?
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?
3.23.2009
Investigating Hedge Funds - Private Eyes
Bloomberg ran article today about investors and institutions who have hired private eyes to investigate hedge funds before investing.
For example, "A probe three years ago by his First Advantage Investigative Services LLC found in public documents that a brokerage run by the pair had agreed to settle regulators’ claims that it improperly used customer assets as loan collateral and had been fined at least 11 times for violating rules at several U.S. exchanges."
The story quotes anectdotal evidence from firms and individuals who luckily avoided troubled funds because of their investigative work.
It will be interesting to see whether hedge funds actually end up getting more scrutiny from the private sector than from regulators. Given the pitiful investigative work by the SEC, the private sector probably has a better chance at regulating funds in the future, particularly given investors' recent skepticism.
For example, "A probe three years ago by his First Advantage Investigative Services LLC found in public documents that a brokerage run by the pair had agreed to settle regulators’ claims that it improperly used customer assets as loan collateral and had been fined at least 11 times for violating rules at several U.S. exchanges."
The story quotes anectdotal evidence from firms and individuals who luckily avoided troubled funds because of their investigative work.
It will be interesting to see whether hedge funds actually end up getting more scrutiny from the private sector than from regulators. Given the pitiful investigative work by the SEC, the private sector probably has a better chance at regulating funds in the future, particularly given investors' recent skepticism.
3.22.2009
Obama Administration to Introduce Hedge Fund Regulations
Obama and the Treasury are left with the task of convincing foreign leaders and corporations that the US financial system is still safe despite high profile failures of several hedge funds, and the downfall of some of the US' largest banks and brokerages.
Forcing derivatives including CDOs, CDS, and a whole host of other products onto exchanges would be likley to minimize counterparty risk and might encourage the responsible use of the more levered instruments.
3.15.2009
Gordon Brown Speaks of Cracking Down on "Shadow Banking System"
Britain's Prime Minister, Gordon Brown, spoke yesterday of massive changes to the oversight of the "shadow banking system," including hedge funds and investment banks. Brown noted that financial institutions of all sorts should be regulated based on what they do, rather than how they classify themselves.
Hedge fund regulation will likely be a heavily debated subject at the G20 meeting beginning April 2. G20 finance ministers, meeting in Sussex, agreed that hedge funds and their managers
should be registered and “disclose appropriate information to assess the risks they pose”.
Hedge fund regulation will likely be a heavily debated subject at the G20 meeting beginning April 2. G20 finance ministers, meeting in Sussex, agreed that hedge funds and their managers
should be registered and “disclose appropriate information to assess the risks they pose”.
2.26.2009
EU Official Seeks Greater Hedge Fund Transparency
The top EU financial official, Charlie McCreevey, is seeking greater transparency from European hedge funds, amid pressure from politicians and citizens. This comes amid increased calls for hedge fund transparency in the US. McCreevey said noted "undesirable levels of leverage in hedge funds, or excessive lending to private equity managed companies."
He also acknowledged the role of leverage in today's markets with redemptions forcing many funds to sell positions, "Much of the present difficulty encountered by hedge funds and private equity portfolio companies stems from the sudden tightening in cash and securities lending,"
"Those who do not like activist investors should not have a fixation with hedge funds," McCreevy said. "Any policy responses that seek to tackle wider problems by targeting hedge funds and private equity will fail."
European nations will likely discuss this with the U.S., China, India and Brazil when the G-20 group of nations meet in April to chart out ways to fix the financial system.
Read the full article
He also acknowledged the role of leverage in today's markets with redemptions forcing many funds to sell positions, "Much of the present difficulty encountered by hedge funds and private equity portfolio companies stems from the sudden tightening in cash and securities lending,"
"Those who do not like activist investors should not have a fixation with hedge funds," McCreevy said. "Any policy responses that seek to tackle wider problems by targeting hedge funds and private equity will fail."
European nations will likely discuss this with the U.S., China, India and Brazil when the G-20 group of nations meet in April to chart out ways to fix the financial system.
Read the full article
Paul Volcker Urges Congress to Restrict Hedge Funds
Former Federal Reserve Chairman and current Obama economic advisor, Paul Volker, urged Congress today to place "strong restrictions" on hedge funds and private equity firms to ensure market stability.
Below are some quotes from Volker's testimony:
“We must not again leave the markets so vulnerable that a breakdown will again threaten the national and world economies"
Volker and Obama, July 28, 2008
We need "strong restrictions on risk-prone capital market activities -- hedge funds, equity funds, proprietary trading and the like"
"We are living in a difficult time for the economy, with unprecedented complexities, complications and risks for financial markets and financial institutions."
"There are problems with the present international monetary system that have not received sufficient attention,"
It remains to be seen, what, if any, restrictions or registration requirements Congress will impose on hedge funds, but there current economic and political climate will certainly make it tough for private capital to remain as opaque as it once was.
2.09.2009
SEC Commissioner Supporting Hedge Fund Regulation
SEC Commissioner Elisse Walt, is supporting greater regulation of US hedge funds, an issue supported by democrats in Congress, particularly after the recent Ponzi scheme involving Bernard Madoff.
"I generally do support that notion (of hedge fund registration)," Walter told Reuters in an interview. "But the devil is in the details. Registration has to be meaningful."
Treasury Secretary Timothy Geithner and SEC Chairman Mary Schapiro also have recently expressed their support for legislation regulating hedge funds and other private pools of capital.
However, given that Madoff's firm was in fact an SEC regulated fund, it is not clear who should have regulating authority nor whether it will be effective.
12.02.2008
EU to Take Steps to Regulate Hedge Funds
EU Hedge Fund Regulation:
The EU plans to take steps to in
crease regulation and governance of hedge funds the EU's financial chief , Charlie McCreevey disclosed on Monday. He proposed that officials consider the risks hedge funds pose to the markets under current regulations as well as discuss methods for defining hedge funds and other oversight. McCreevey also explicitly noted he is not interested in a short selling ban.
Read the full story:
The EU plans to take steps to in
crease regulation and governance of hedge funds the EU's financial chief , Charlie McCreevey disclosed on Monday. He proposed that officials consider the risks hedge funds pose to the markets under current regulations as well as discuss methods for defining hedge funds and other oversight. McCreevey also explicitly noted he is not interested in a short selling ban.Read the full story:
11.16.2008
Hedge Fund Registration Discussed in Senate
The US Senate again began discussing the possibility of greater hedge fund regulations including broader registration requirements. Sen. Chuck Grassley, R-Iowa argued that hedge fund clients include pensions and other retirement funds, not just "fat cat" investors.
Read the full story:
Read the full story:
11.13.2008
Soros Testifies Before Congress
Soros says hedge fund assets (AUM) will decrease 50-70% in Congressional testimony. Says hedge funds need to be regulated and that excessive deregulation has created losses. Regulators should reactivate margin requirements.
11.10.2008
Exit Strategies: Questions About Hedge Fund Redemptions.
The recent poor performance of hedge funds has many investors curious about their ability to withdraw assets from under-performing hedge funds. Only the lack of regulation and wide variety of redemption polices has some investors confused. Fund managers also sometimes face the difficult task of selling somewhat illiquid assets to meet investor redemptions.
Unlike mutual funds which are governed by the SEC including the Securities Act of 1933, the Investment Company Act of 1940, the Securities Exchange Act of 1934 and the Investment Advisers Act. Hedge funds are usually not required to be SEC registered though the managers do have certain fiduciary duties.
Some of the common hedge fund redemption provisions include a "lock up" period, typically of 1-4 years, in which redemptions are not permitted except with manager consent. Some funds have a "gate" which limits the total amount of redemptions the fund will pay at any redemption period, maybe 20% of total assets. Hedge fund managers may also take reserves to pay for future liabilities. Lastlyhedge funds differ in the frequency of withdrawal periods.
Read the full article:
Unlike mutual funds which are governed by the SEC including the Securities Act of 1933, the Investment Company Act of 1940, the Securities Exchange Act of 1934 and the Investment Advisers Act. Hedge funds are usually not required to be SEC registered though the managers do have certain fiduciary duties.
Some of the common hedge fund redemption provisions include a "lock up" period, typically of 1-4 years, in which redemptions are not permitted except with manager consent. Some funds have a "gate" which limits the total amount of redemptions the fund will pay at any redemption period, maybe 20% of total assets. Hedge fund managers may also take reserves to pay for future liabilities. Lastlyhedge funds differ in the frequency of withdrawal periods.
Read the full article:
Hedge Fund Managers to Apper Before Congress
After last month grilling Lehman CEO Richard Fuld, the same Congressional leaders has called upon several high-profile hedge fund managers to give testimony to discuss the failures of US financial institutions and the possible role of hedge funds.
Philip Falcone, Kenneth Griffin, John Paulson, James Simons and George Soros on Thursday are expected go before the House Committee on Oversight and Government Reform. They will have several minutes each to make opening remarks, then will field questions from lawmakers, according to a committee spokeswoman.
Read the full article
Philip Falcone, Kenneth Griffin, John Paulson, James Simons and George Soros on Thursday are expected go before the House Committee on Oversight and Government Reform. They will have several minutes each to make opening remarks, then will field questions from lawmakers, according to a committee spokeswoman.
Read the full article
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