Register Advisers, Not Funds: MFA

Date: Thursday, April 2, 2009
Author: Rachelle Younglai,

U.S. hedge funds concerned about growing Congressional momentum to regulate their opaque $1.2 trillion industry said Tuesday [March 31] they could live with requiring fund advisers to register, but not with requiring the funds themselves to be subjected to such oversight.

The registration of fund advisers should be "more than sufficient to get the information that a regulator would need," said Richard Baker, chief executive of Managed Funds Association.

There is growing consensus among key U.S. policymakers and regulators such as the Securities and Exchange Commission, the Treasury Department and some lawmakers that hedge funds need more oversight.

In recent testimony to a Congressional panel, SEC Chairman Mary Schapiro said the agency might ask Congress to require hedge fund advisers—and possibly the hedge funds—to register with the SEC.

Treasury Secretary Timothy Geithner has also told Congress that hedge fund advisers and venture capital firms should be forced to register with the SEC.

The SEC had required hedge fund advisers to register with the agency until the regulation was thrown out by a federal court in 2006. Nevertheless, many of the fund advisers continued to voluntarily register with the SEC and to comply with the relevant disclosure requirements.

Mr. Baker said he has concerns about other issues that may arise as part of lawmakers' plan to reform financial regulation. For example, Mr. Baker said if a new regulatory structure set leverage or capital ratios for hedge funds, that would "present operational issues" for the fund industry.

"It's not just a mere inconvenience," Mr. Baker told reporters. "It's more: Can we do what we do if we have artificial standards of conduct established, without regard to understanding the risk profile of the firm that is deploying the leverage or using the capital that it has?"

The group, which represents more than 1,800 U.S. hedge funds, released its fifth version of "sound practices," modeled on recommendations from the President's Working Group on Financial Markets.

The practices include a due diligence questionnaire for investors to use, as well as an overall approach to risk monitoring. The group has been working with regulators and policymakers to develop ways to prevent systemic risk and increase investor protection.

By Rachelle Younglai