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July 16, 2004 at 08:00 PM
CHICAGO (HedgeWorld.com)–Hedge fund industry trade groups on both sides of the Atlantic said they planned to carefully review the Securities and Exchange Commission’s proposed hedge fund manager registration rule, but early indications are that once they do neither will much like what it sees.
In a statement, officials at the Washington-based Managed Funds Association emphasized the split vote by SEC commissioners to forward for 60 days of public comment a proposed rule and rule amendments that effectively would require hedge fund managers to register as investment advisers. They also reiterated the MFA’s longstanding position that mandatory registration of hedge fund managers is unnecessary and has the potential to be overly burdensome.
“Any resort to governmental regulation has to be carefully considered to ensure the benefits afforded outweigh the burdens created,” said MFA President John G. Gaine. “The case for mandatory investment adviser registration of hedge fund managers has not been made, and we expect that once all the facts are in, the proposal will not be adopted.”
Adam C. Cooper, chairman of the MFA as well as senior managing director and general counsel for Chicago hedge fund firm Citadel Investment Group LLC, testified before the Senate Banking Committee on Thursday that, if adopted as proposed, new SEC rules could “adversely impact” the hedge fund industry.
Mr. Cooper said hedge funds play a critical role in capital markets, providing liquidity by acting as counterparties to investors who want to hedge risk and by offering investment opportunities uncorrelated with stocks and bonds. Current regulations, which allow hedge fund managers to register as investment advisers voluntarily or take advantage of exemptions and not register, have worked well for both the industry and for investors, Mr. Cooper said.
“The success and growth of the hedge fund industry and the general satisfaction of its investors testify to the fact that the current regulatory regime works extremely well,” Mr. Cooper told members of the Banking Committee. “This framework reflects the long-standing recognition by Congress and federal regulators that government resources should be devoted to protecting investors that require protection, rather than those that can look out for themselves.”
He said the government’s current level of hedge fund oversight is consistent with how it monitors other private investments such as venture capital, over-the-counter derivatives and private equity.
