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Regulation and Compliance > Federal Regulation

A Qualified Yes to Hedge Fund Regulation

by Melanie Waddell

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In testimony before Congress November 13, five hedge fund managers–each of whom made at least $1 billion last year–said that they would be willing to disclose more information about their hedge funds’ strategies to regulators, but not to the general public.

Kenneth Griffin, founder of the Citadel Investment Group, told Rep. Henry Waxman’s Committee on Oversight and Government Reform, however, that before hedge funds should be required to disclose more information, “a common language to describe derivatives is needed first.” George Soros conceded that while more oversight of hedge funds is needed, he warned of “going overboard with regulation.”

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The hedge fund managers also agreed that there should be more disclosure of the amount of leverage a hedge fund uses.

Some hedge funds use too much leverage, said John Paulson, president of Paulson & Co. “Leverage exacerbates any market move,” he said, adding that “almost every financial firm that has run into trouble has used too much leverage.” Indeed, Soros said the “introduction of new-fangled financial instruments has made it harder to calculate leverage; this becomes complicated especially if you have tailor-made instruments.” It may be necessary, he said, “for regulators to understand what they are regulating; if they don’t, they shouldn’t allow the instruments to be used.”