Hedge fund bill to give SEC registration authority

Date: Tuesday, April 28, 2009
Author: Rachelle Younglai, Reuters.com

A U.S. Senate bill to make the $1.3 trillion (890 billion pound) hedge fund industry more transparent would give federal regulators the authority to require fund managers to register with the Securities and Exchange Commission, one of the bill's authors said on Monday.

Earlier this year, Republican Senator Charles Grassley and Democratic Senator Carl Levin introduced the legislation but wording in the bill sowed confusion among hedge fund advisers.

Speaking at the Reuters Global Financial Regulation Summit in Washington, Grassley said his bill would give the SEC the authority it lost when a federal court squashed the agency's attempt to oversee the lightly regulated industry.

"Right now, what I'm trying to do is overturn the court case and recognize what needs to be done," Grassley said. "Transparency is very, very important."

When the court overturned the SEC rule in 2006, many of the hedge fund advisers that were registered with the SEC continued to voluntarily register with the agency and subject themselves to federal supervision.

Many hedge fund advisers are satisfied with the current regime and interpreted provisions in the Grassley-Levin bill to mean it would require hedge funds to disclose the names and addresses of all their investors. Grassley and Levin have since clarified that their bill does not require disclosure of hedge fund clients who merely invest in the fund.

Advisers were also confused about the intent of the bill, but Grassley said on Monday the legislation was simply giving the SEC the authority it had sought before the court ruling.

Currently, investment advisers that are registered with the SEC are required to provide clients with information about their business, fees, risks customers can expect and conflicts of interest.

At the Reuters Summit, Grassley deferred to the SEC's expertise. "Maybe some of the information that came from registration would bring about some enforcement of existing law at that particular time," Grassley said.

Key policymakers Treasury Secretary Timothy Geithner and SEC Chairman Mary Schapiro have said they support a registration requirement for hedge funds. Schapiro on Monday said the SEC was looking at regulating hedge funds.

Grassley said he would hold off on closing some of the corporate tax loopholes such as taxing hedge fund so-called carried interest as income or taxing private partnerships like private equity firms as corporations.

"It seems to me that I don't want to do anything that makes Wall Street more nervous," Grassley said, adding that he would again support taxing carried interest when "we're in better times."