Long-awaited SEC hedge fund report seen imminent
26 September 2003, 12:26pm ET
By Kevin Drawbaugh
WASHINGTON, Sept 26 (Reuters) - The U.S. Securities and Exchange Commission was expected to unveil, possibly as early as Monday, staff recommendations for regulating hedge funds by forcing more of their managers to register with the SEC.
The recommendations, which will face tough review by the five-member commission and the public, will also recommend that examiners be allowed to review the closely guarded trading strategies of hedge funds, said sources close to the SEC.
Staff will also suggest that hedge funds -- loosely regulated investment pools favored by financial institutions and the rich -- comply with some basic accounting rules and give the SEC more information about themselves, sources said.
These recommendations, first reported by Reuters on Sept. 3, are likely to encounter disagreement within the commission and opposition from segments of the hedge fund industry.
SEC Commissioners Cynthia Glassman and Paul Atkins oppose some of the staff's recommendations and are undecided on others, according to sources.
SEC Chairman William Donaldson was said to have guided the preparation of the staff report, with commissioners Harvey Goldschmid and Roel Campos generally supportive, but cautious.
An SEC spokesman declined to comment.
Hedge funds came under renewed scrutiny recently when New York Attorney General Eliot Spitzer unveiled a probe of illegal trading in mutual fund shares. A hedge fund was involved.
ON WASHINGTON'S RADAR
The SEC has been investigating the hedge fund industry for months. It held a roundtable discussion with hedge fund industry participants in May.
At that time, officials said hedge funds might also be told to begin disclosing risk data about their investments.
Hedge funds have more than $600 billion in assets, much less than the nearly $7 trillion in mutual funds. But hedge funds have grown rapidly due to their superior performance.
Hedge funds can invest in almost anything, from taking long and short, or "hedged," positions in stocks, to dealing in futures and other derivatives.
Almost two-thirds of the 100 largest hedge funds are already registered with another U.S. government agency, the Commodity Futures Trading Commission. Ironically, the CFTC has recently proposed exempting some hedge funds from registering.
About a quarter of hedge fund managers are already registered as investment advisers with either state authorities or the SEC, according to industry figures.
"The concept that there's a huge pool of capital out there and that it's unregulated and nobody knows anything about it is not accurate," said John Gaine, president of the Managed Funds Association, a hedge fund industry lobbying group.
Sources said the SEC staff will recommend that more hedge fund managers register as investment advisers.
Congress is eyeing hedge funds, as well. The Senate Banking Committee is scheduled to hold a hearing on Tuesday, when Donaldson will be questioned about hedge and mutual funds.
AI
