WASHINGTON (HedgeWorld.com)–Both houses of Congress are considering legislation to halt abuses in the mutual fund industry, and despite some consensus passage may snag on the question of whether an individual should serve simultaneously as portfolio manager of both a hedge fund and a mutual fund.
The House of Representatives passed its version of the act, the Mutual Fund Transparency and Integrity Act of 2003, also known as HR 2420, by the suspense-free margin 418 to 2, on Nov. 19.
The gist of the bill, drafted by Rep. Richard Baker (R-La.) and marked up in late July by the House Financial Services committee, originally was to direct the Securities and Exchange Commission to promulgate rules that require transparency as to mutual fund fees and costs, inclusive of soft-dollar arrangements, and to strengthen the independent directors of fund management firms.
Rep. Baker is the chair of the capital markets subcommittee within Financial Services. The chair of the full committee, Michael Oxley (R-Ohio), offered an amendment to the Baker bill Nov. 18 to update it in light of subsequent revelations. That amendment included the provision prohibiting the same portfolio manager from serving two masters. It also required the SEC to issue clearer rules encouraging fair-value pricing, i.e. to eliminate the “stale price” problem that investors, including hedge funds such as Canary Capital Partners LLC, Secaucaus, N.J., have exploited .
Rep. Oxley knew that Rep. Baker would not oppose such amendments to his bill because Rep. Baker had himself proposed them in testimony before the Senate Governmental Affairs Committee’s subcommittee on financial management, Nov. 3.
Rep. Baker said then that he still regarded HR 2420 as an important first step, but in light of the recent events he wanted to go further.