Hedge funds generally accept Obama oversight plan

Date: Wednesday, April 1, 2009
Author: The Associated Press

Hedge funds generally accept the Obama administration's proposal to require managers to register with regulators, but want to ensure their information will be kept confidential when Congress acts, the head of the industry's trade group said Tuesday.

Throwing regulatory reins around hedge funds — the vast pools of capital that largely escape government supervision and draw hundreds of millions of dollars from pension funds, charities, university endowments and wealthy individuals — is a central part of efforts to revamp the system of financial oversight spurred by the global economic crisis.

The administration, in a plan unveiled last week, wants to require larger hedge funds, as well as other private pools of capital such as private equity and venture capital funds, to register with the Securities and Exchange Commission, thereby opening their books to federal inspection.

SEC Chairman Mary Schapiro, who is an independent regulator, wants all hedge funds to be required to register with the agency.

Across the sea, meanwhile, tighter regulation of hedge funds is expected to be announced by the Group of 20 global leaders meeting in London on Thursday as governments seek to rein in the activities of the so-called shadow banking system blamed for battering the world economy.

"Europeans have politics, too ... there are varying degrees of enthusiasm" for hedge fund oversight, Richard Baker, president and chief executive of the Managed Funds Association said at a meeting with reporters.

What is likely to emerge from the G-20 summit is "enhanced oversight" of hedge funds rather than a "granular approach" to closely regulating their activities, he said.

Baker until about a year ago was a Republican congressman from Louisiana and a longtime senior member of the House Financial Services Committee. He understands that the congressional shaping of the landmark financial overhaul will be a long and complicated slog.

He said Treasury Secretary Timothy Geithner's statements last week to Congress on the administration's plan were "very sound," but added, "I don't know the specifics yet."

The caveat to registering hedge funds is that the internal financial information provided to regulators be kept confidential and not disclosed to the public.

Legislation proposed by Sens. Carl Levin, D-Mich., and Charles Grassley, R-Iowa, would require all hedge funds to register with the SEC and their information, including the funds' owners and the value of assets, to be made publicly available.

Also, a regulator in charge of monitoring potential risks to the financial system — as envisioned by the Obama plan — might create "operational" problems for hedge funds by setting limits on how highly leveraged they are, or their ratio of capital to borrowed money, Baker suggested.

Hedge funds now have an estimated $1.5 trillion in assets. Some suffered huge losses last year, notably from investments in securities backed by subprime mortgages.

The Managed Funds Association on Tuesday released a new version of its voluntary standards of best practices for hedge fund managers, an effort it began in 2000. It includes a questionnaire for prospective investors in hedge funds to use to assess an individual fund's expertise, risk profile and strategy.

The new standards also include a framework for valuing hedge fund assets.

About 70 percent of the total assets managed by hedge funds have been voluntarily registered with the SEC, according to the group.