NEW HAVEN, Conn. (HedgeWorld.com)–The campus-based coalition that has demanded hedge fund Farallon Capital Management LLC provide greater disclosure of its investments filed a comment letter with the Securities and Exchange Commission urging registration of hedge fund managers as investment advisers.
The group, which calls itself the Unfarallon coalition, submitted the letter as part of the SEC’s open comment period on proposed rule changes that would require hedge fund managers to register with the commission. In it, representatives of the coalition said hedge funds should be required to provide investors with audited annual and unaudited quarterly financial statements, as well as a schedule of investments.
Furthermore, reports to investors from the funds should include a list of all the limited partners in the fund and a comparison of each limited partner’s returns with explanations of fees and how they affected performance.
The Unfarallon coalition got kick started earlier this year by a student group at Yale University that wanted to force greater disclosure of the school’s endowment investments. The group picked Farallon Capital as its primary target.
“I think that hedge funds which have universities as their clients have a responsibility to provide information that enables students to debate the ethics of their university’s investments,” said Andrea Johnson, a coalition member and a graduate student at Yale’s School of Forestry and Environmental Studies, in a statement. “The proposed SEC regulations are a step in the right direction.”
In its letter to the SEC, the Unfarallon coalition members said one of the primary reasons they support the SEC’s proposed rules is because of the greater disclosure such rules would provide. Smaller investors, they said, are at a disadvantage when it comes to conducting due diligence on fund managers. Mandatory registration, coalition members wrote, will help investors “be assured that their hedge fund advisors are not convicted felons.”
Further, the coalition members said hedge fund managers who do not have documentation of a track record should be required to clearly disclose that their performance claims lack proof.
And, while they said they support the mandatory distribution of audited financial statements, they added there remains an equally pressing need for quarterly statements. “It is important for investors, institutional or private, to have access to timely information in order to evaluate and modify investment allocations,” coalition members wrote in their letter to the SEC. “Without quarterly statements, an investor will only be able to evaluate his or her investments once a year.”
The coalition members told the SEC they believed mandatory registration would benefit U.S. colleges and universities whose endowments invest in hedge funds. Universities with large endowments invest an average of 19.9% of their endowments in hedge funds, coalition members said, citing a 2003 study by the Washington-based National Association of College and University Business Officers.
“We sent this letter to the SEC because we want our universities’ endowments to grow, but we want to do that in a socially responsible manner,” said Adam Rivera, a senior at the University of Pennsylvania and coalition member. “In order to do that, hedge funds need to be more open about what they invest in.”
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