Hedge Fund Registration Is Still A Pointless Exercise

Date: Wednesday, May 6, 2009
Author: John Carney, Businessinsider.com

The chief of investment management at the Securities and Exchange Commission told a Mutual Fund trade group yesterday that that he believes hedge fund advisers should be required to register with the SEC, Sarah Lynch of Dow Jones Newswires reported this morning.

So now that this terrible idea is once again rearing its nonsensical head, we'll have to return to thwacking it back down.

Hedge fund registration was never a very good idea because it provided almost no benefits but had serious costs. It doesn't provide investors with any real security but it might lull some investors into thinking investing in hedge funds is safe. The SEC can't detect fraud at hedge funds, much less police investment strategies.

"The fundamental problem is that the SEC simply lacks the expertise to provide enough value added to be worth the regulatory costs and to justify the signal of safety registration gives investors," University of Illinois law professor Larry Ribstein writes at Ideoblog.

Ribstein points out that hedge fund registration has been voluntary ever since the federal courts abolished the requirement that advisers register. Very few hedge fund managers registered for the simple reason that their clients weren't very interested in registration.

But one money manager did register. His name was Bernie Madoff. How'd that work out?