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December 01, 2006 at 02:00 AM
Now that the Democrats have seized both houses of Congress, some hedge fund officials are anticipating tighter controls on the industry. Granted, Republicans, too, heightened their scrutiny of hedge funds of late, but Lisa McGreevy, executive VP and chief operating officer at the Managed Funds Association (MFA) in Washington
opines that “issues related to hedge funds are not partisan issues.” Prior to the November 7 midterm election, she says, “both Republicans and Democrats were working very closely with each other on the issue of where do we go from here” in monitoring hedge funds. Michael Tannenbaum, a partner at New York law firm Tannenbaum Helpern Syracuse & Hirschtritt LLP, argues, however, that hedge funds should indeed brace for more regulation. “Philosophically,” he argues, “it’s more likely that Democrats will regulate [hedge funds] than Republicans.”
Before the midterm elections, bipartisan efforts to scrutinize hedge funds were taken up by Rep. Richard Baker (R-Louisiana) and Rep. Barney Frank (D-Massachusetts) along with Rep. Mike Castle (R-Delaware) and Senator Richard Shelby (R-Alabama), McGreevy points out. Examining hedge funds “was non-partisan then and I think it’s still non-partisan,” she says.
In June, Congressman Frank–who becomes chairman of the House Financial Services Committee–introduced the Securities and Exchange Commission Authority Restoration Act of 2006 (H.R. 5712), which would give the SEC the go-ahead to reinstate its hedge fund manager registration rule. That rule was struck down by a June 23 ruling by the U.S. Court of Appeals for the District of Columbia Circuit, which focused its opposition on the SEC’s use of the term “client” in the hedge fund registration rule the securities regulator passed in December 2004. Tannenbaum, for one, believes that Frank will use his position as chair of the House Financial Services Committee to push his bill through.
Of Presidents and Pensions
Rep. Castle introduced a bill in mid-September, the Hedge Fund Study Act (H.R. 6079), which would require the President’s Working Group on Financial Markets to conduct a study of the hedge fund industry. In particular, the bill requests that the working group examine the changing nature of hedge funds and their definition; the growth of hedge funds; the growth of pension funds investing in hedge funds; whether investors can adequately protect themselves from risks associated with hedge funds; whether hedge fund leverage is effectively constrained; and the risks hedge funds pose to the overall financial markets and investors. Tannenbaum says the bill is a roadmap for what he expects will be “the hot buttons for the next year or two.” Going forward, he expects “tighter regulation and more precise regulation focused on particular segments of the industry as opposed to some major omnibus bill.” Congress should not take a “Sarbanes-Oxley, broad-brush approach to some of these perceived issues,” he said, rather it should “take a scalpel to some of these issues and regulate items on a case-by-case basis.”
