WASHINGTON - Key federal lawmakers at a House Financial Services Committee hearing March 13 expressed concern about what might happen to pension funds if their hedge fund investments go sour.
The lawmakers provided little guidance on what sort of cure they might prefer, other than a suggestion from Rep. Stephen Lynch, D-Mass., that the percentage of pension plan assets exposed to hedge funds should somehow be limited. Rep. Jeb Hensarling, R-Texas, said he was concerned that losses from pension funds that make bad hedge fund investments could contribute to the need for a taxpayer bailout of the Pension Benefit Guaranty Corp.
Rep. Barney Frank, D-Mass., said he is concerned about public pension plans, which are not insured by the PBGC and are not subject to the regulations of the Employee Retirement Income Security Act of 1974. ``That is something we will be looking at,'' Mr. Frank said.
The consensus among the witnesses representing the hedge fund industry was that any new regulatory obligations should be targeted solely at the pension funds, not hedge funds.
Grassley proposes allowing SEC to regulate hedge funds
WASHINGTON - Sen. Charles Grassley, R-Iowa, proposed a legislative amendment that would authorize the SEC to require hedge fund advisers to register with the agency, according to a news release. A registration requirement is needed because pension funds are invested in hedge funds and ``millions of pension holders are in the dark about their exposure to hedge fund losses because transparency is so inadequate,'' Mr. Grassley said in the release.
Mr. Grassley proposed attaching his registration amendment to homeland security legislation currently pending before the Senate; his amendment is relevant to the homeland security bill because ``reports have indicated terrorist links to some pooled investment groups, including hedge funds,'' according to the release.
The U.S. Court of Appeals in Washington overturned the SEC's hedge fund registration requirement on June 23.
Morgan Stanley buys into Abax Global hedge fund
NEW YORK - Morgan Stanley will acquire ``a significant minority stake'' in Abax Global Capital, a hedge fund being set up in Hong Kong. Erica Platt, a spokeswoman for Morgan Stanley, said the company is not disclosing terms of the deal.
The fund will invest in Asian special situations, using public and private securities, with a focus on China, according to a Morgan Stanley news release. Abax's founding partners are ex-Citadel employees Chris Hsu, who was managing director with responsibility for the firm's Asia special situations group, and Frank Qian, a trader and risk manager. The third founding partner is Donald Yang, formerly a Merrill Lynch managing director who headed the firm's Hong Kong and greater China debt capital markets business. Bryan Locke, a Citadel spokesman, did not return a call requesting information about replacements for Messrs. Hsu and Qian. Terez Hanhan, a Merrill Lynch spokeswoman, was unable to provide information about Mr. Yang's replacement by press time.
Separately, Morgan Stanley Investment Management created a new investment division that will house its real estate, infrastructure and new private equity funds, according to an internal memo sent March 7 to MSIM employees. To establish the new unit, to be known as the direct investment group, Morgan Stanley moved its Morgan Stanley real estate investing group into its asset management business from its investment banking operation. The real estate unit has $45 billion in assets under management. The move was made to ``combine all of the firm's third-party funds management businesses within MSIM,'' according to the memo.
Managing directors Jay Mantz and Steve Trevor will co-manage the direct investment group. Mr. Mantz was the co-head of the real estate unit, and Mr. Trevor was managing director in the principal investments business at Goldman Sachs; he left in September.