Hedge funds see silver lining in Dodd-Frank law

Date: Friday, April 13, 2012
Author: Svea Herbst-Bayliss and Katya Wachtel, Reuters

Some hedge funds are seeing a silver lining in the Dodd-Frank law as it lifts the industry's veil of secrecy.

After years of resisting closer governmental oversight, the $2 trillion industry grudgingly came to accept the new law which requires all but the very smallest funds to register with the Securities and Exchange Commission and reveal data that was once released only to the funds' wealthy clients.

Now some hedge funds expect registration to broaden the appeal of their portfolios, effectively allowing hedge funds to become more mainstream investment choices, according to a study released on Thursday.

"Managers view registration with the SEC as a cost of doing business," said Nicholas Tsafos, a partner in accounting firm EisnerAmper, which conducted the study along with Hofstra University. "It makes investors more comfortable with hedge fund investing," he said in a statement.

The new law became effective on March 30 when hundreds of hedge funds, including ones run by industry titans Steven Cohen, Louis Bacon and Paul Tudor Jones, complied. In lengthy narratives they described their operations and investment philosophies while still safeguarding trading secrets.

Each fund's registration documents detail regulatory assets under management, the funds' accountants and whether potential conflicts of interest exist, among other data. They are available to the public on the SEC's web site.

The research report, which was based on responses from 41 funds, found that most hedge funds did not consider the Dodd-Frank bill to be "onerous" largely because many larger funds had already registered before they were forced to.

But some of the industry's most prominent managers still had issues with the new rule, arguing that they had operated safely for years and did not need the new oversight.

Paul Singer who runs Elliott Management wrote to investors a few months ago: "This regulatory push is unstoppable, misfocused, and a waste of time and money." Reuters obtained a copy of the letter.

But he conceded that the new law also "represents the price of admission" leaving funds with no choice but to accept it.