Hedge fund regulation is coming.
Legislators and regulators clearly are focused on how to regulate hedge funds in the aftermath of 2008's credit crunch, stock market plunge and global financial system meltdown, the blame for which has to some extent landed on hedge funds.
After the U.S. Securities and Exchange Commission banned short-selling in financial stocks for a period last fall to disastrous effect — from the hedge fund industry's perspective — hedge fund managers, their lobbyists and their attorneys plan to influence and educate Capitol Hill and the regulatory agencies to make sure any new rules achieve the intended goal without unforeseen consequences.
The first stab at legislation came from the Senate at the end of January: the Hedge Fund Transparency Act, which would require hedge funds and all managers of private pools of capital to register with the SEC. Sen. Jack Reed, D-R.I., also has indicated he is considering legislation on hedge fund liquidity, leverage and capital requirements, based on the financial system reform recommendations of the Group of 30.
Congress could be “aggressive” in 2009 as legislators respond to pressure from constituents “to find out who to blame” for the current financial crisis and how to prevent a recurrence, said Roger Hollingsworth, executive vice president and managing director, government relations of the Managed Funds Association, Washington. He made the comment at the group's conference in Key Biscayne, Fla., held Feb. 8-10.
“It's coming. Our job is to make (regulation) as productive as possible for us, our clients and the capital markets,” Darcy Bradbury, senior vice president of D.E. Shaw & Co. LP, New York, and chair of the MFA's legislative subcommittee, said at the conference.
Legislation that would require hedge fund managers with more than $50 million under management to register with the SEC was introduced on Jan. 29 by Sens. Carl Levin, D-Mich., and Charles Grassley, R-Iowa. The senators said in a joint statement unveiling their bill that a lack of transparency by financial institutions was a major cause of the ongoing financial crisis.
Mr. Grassley introduced a similar bill two years ago, but that measure died in committee and didn't reach the Senate floor.
“There wasn't much of an appetite for this sort of legislation before the financial crisis,” Mr. Grassley said in the statement. “I hope attitudes have changed...”