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New York (HedgeCo.Net) – If Treasury Secretary Timothy Geithner gets his way, hedge funds and private equity firms will be placed under the supervision of the federal government.  

“Over the past 18 months, we have faced the most severe global financial crisis in generations,” Geithner said at the House Financial Services Committee hearing on Thursday, adding that “comprehensive reform” is required.  “Not modest repairs at the margin, but new rules of the game.”

Geithner supports a mandatory requirement for hedge funds and other large money management firms to register with the Securities and Exchange Commission, an issue that has been at the forefront of political debate recently.  Hedge funds would also have to keep the SEC updated on their trades and strategies.  

A systemic risk regulator would be imposed that could force these firms to raise capital or halt borrowing.  The regulator may also seize hedge funds or other non-bank entities if they felt it was necessary, though it was unclear which agencies would be responsible for handling that task.

“You don’t want to vest in any single institution such broad powers,” he explained.  

The Obama administration has been vocal about their desire to regulate the $1 trillion hedge fund industry.  After two massive hedge funds within Bear Stearns collapsed in the summer of 2007, eventually leading to the demise of the bank, many members of Congress started supporting regulation with the notion that hedge funds have a direct impact on our economy.  

Also backing the argument was the monumental damage caused by credit default swaps and the lack of regulation behind them, as was the case with American International Group.  

“The days when a major insurance company could bet the house on credit default swaps with no one watching and no credible backing to protect the company or taxpayers much end,” Geithner added, referring to the AIG debacle.

Under the proposed regulation, the market on which these credit default swaps and other derivatives would be regulated for the first time.

The SEC has tried previously to impose a registration requirement on hedge funds, only to have it overturned by a federal appeals court in 2006.       

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
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Tags: american-international-group, bear-stearns, credit default swaps, financial-services-committee, global financial crisis, hedgeco, house-financial-services-committee, major insurance, mandatory requirement, members-of-congress, money management firms, private equity firms, rules of the game, securities-and-exchange-commission, single institution, systemic-risk, timothy geithner, treasury-secretary

New York (HedgeCo.Net) – Connecticut has long been a haven for the hedge fund industry; where light regulation and a dense population of ultra wealthy investors lure the most talented of hedge fund managers.  But if some state lawmakers have their way, hedge funds will have to jump through a lot more hoops than they are used to, according to the Hartford Business Journal.

Under current law, hedge funds only allow accredited investors who have a net worth of $1 million or higher to participate.  The proposed legislation would bump that minimum requirement up to $2.5 million, with institutions needing at least $5 million in assets.

The new legislation would also require hedge funds to provide greater transparency by disclosing their fees and other information about management or investment strategy.  Hedge funds would also be required to obtain a state license as well as have an independent annual financial audit performed.

Many fear that by imposing these guidelines, Connecticut would have less of a draw, and many hedge fund managers could simply pack up and move to nearby metropolises like New York or Boston.

The pull for stricter oversight on hedge funds is by no means limited to the state level.  Many members of Congress have been pushing for greater transparency after hedge funds got blasted for having a hand in the financial crisis thanks to controversial practices like short selling. 

Others push for heightened regulation due to the recent outbreak of Ponzi schemes from so-called “trustworthy” individuals, like Arthur Nadel of Sarasota or the obvious case of Bernard Madoff where hundreds of investors were swindled out of their retirement.  However, many who oppose the oversight based on increased fraud argue that investors are ultimately responsible for where their money goes and should perform greater due diligence themselves before trusting anyone with large sums of capital.

Republican State Representative John Stripp told the Hartford Business Journal that it’s not about a “vendetta against hedge funds,” just that “there is a need to have some kind of regulation in place.”

Even European finance ministers agreed this past weekend to the direct regulation of hedge funds overseas, leading most to believe that the era where hedge funds could get away with anything, is coming to an abrupt end.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
Be sure to check out our sister sites. www.hedgefundlounge.com, www.hedgefundtools.com, and www.hedgefundemployment.com

Tags: accredited-investors, bernard madoff, dense population, due diligence, financial-audit, hartford business journal, hedge-fund-managers, hedgeco, investment strategy, many-fear, members-of-congress, metropolises, new legislation, ponzi schemes, representative john, republican state representative, state lawmakers, stripp, wealthy-investors

Bloomberg – Wolver Hill Japan Multi-Strategy Fund, run by Deutsche Bank AG’s former prime brokerage sales chief in Tokyo, resisted the worst month for the nation’s stocks in almost 15 years to be little changed in September.

The $11 million fund of hedge funds, which invests in 14 hedge funds with a combined $5.8 billion of assets, slipped 1.4 percent in September based on preliminary figures, said Ed Rogers, chief executive officer of Wolver Hill’s local advisory firm, Rogers Investment Advisors Y.K. The Topix index of 1,714 companies tumbled 13 percent.

Foreseeing a decline in equity prices, Wolver Hill made a shift during the past year into hedge funds that use trading- focused strategies, and away from so-called long-short funds that depend on rising and falling stock prices, Rogers said. Trading- focused funds, including so-called event-driven strategies, trade securities of companies going through events such as mergers, acquisitions and management changes.

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