Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
New York Times – It is time to get serious about hedge fund risk. This, however, is not the usual argument for more regulation of hedge funds. Here is a contrarian view: the best course for our capital markets may actually be in the other direction. Perhaps hedge funds need to be deregulated, breaking down the wall that restricts hedge fund investing only to the wealthy.
All investors — not just rich ones — should have access to the superior investing and diversification potential of hedge funds. Deregulating these opaque entities will also bring these funds out into the open, helping regulators monitor systemic risk, where the real focus of hedge fund supervision should be.
New York (HedgeCo.net) – Richard H. Baker, President and CEO of the Managed Funds Association (MFA) wrote a letter to MFA members this afternoon, highlighting today’s announcement by the Obama Administration requiring all advisers to hedge funds and other private pools of capital, including private equity and venture capital funds, to register with the Securities and Exchange Commission (SEC).
Baker highlights how the Administration’s proposed legislation would:
* eliminate the private adviser exception in the Investment Advisers Act and require hedge fund managers and other investment advisers to private investment pools with at least $30 million in assets under management to register with the SEC;
* eliminate the exemption from registration in the Advisers Act for certain commodity trading advisors registered with the CFTC if the commodity trading advisor acts as an investment adviser to a private fund (defined as a company that would be an investment company under the Investment Company Act of 1940 but for the exceptions contained in Section 3(c)(1) or Section 3(c)(7));
* give the SEC authority to require investment advisers to maintain records and submit reports of information relating to both the adviser and funds it manages, in order to allow for the supervision of systemic risk by the Board of Governors of the Federal Reserve and the Financial Services Oversight Council, and to provide such information to the Board and Council. The reported information must include at least, for each private fund, the amount of assets under management, use of leverage (including off-balance sheet leverage), counterparty credit risk exposures, trading and investment positions, and trading practices. Each adviser must maintain records of such information and make them available to the SEC upon request, and would be subject at any time to periodic, special, or other examinations by the SEC. Information provided by the SEC to the Board or Council would be kept confidential.
* give the SEC authority to require investment advisers to provide reports, records and other documents of private funds to investors, prospective investors, counterparties, and creditors, for the protection of investors or the assessment of systemic risk.
* permit the SEC to keep confidential any information in reports required to be filed with the SEC, except pursuant to requests from Congress or other federal agencies
* provide the SEC with the authority to define the term ‘client’ differently for different purposes of the Advisers Act and clarify other aspects of the SEC’s rulemaking authority with respect to registered investment advisers.
Click here to read the Administration’s press release announcing the proposed legislation.
guardian.co.uk – A minister for Sweden, which took over the EU presidency on Wednesday, said hedge funds and private equity firms needed regulation but should not be viewed as a primary cause of the global financial crisis.
Speaking after a visit by the European Commission to Stockholm to mark the Nordic country’s start in the six-month presidency, Financial Markets Minister Mats Odell cautioned against "overzealous" regulation.
What was needed, he told Reuters, was well-considered, balanced regulation that helped avoid systemic risk.
"I believe there is an exaggerated view in some countries that private equity and hedge funds helped pull us into the crisis," Odell told Reuters.
West Palm Beach (HedgeCo.net) – SEC Chairman Mary Schapiro, speaking at the IOSCO 2009 Conference, said today that in light of the current economic crisis and in an attempt to restore confidence to investors, the US is currently examining how to best shape the future role that regulators as well as credit rating firms will play in the securities market.
“We need to constantly keep pace with the financial products and with the risks of how the products are packaged and sold,” she said. “Now is the time for securities regulators to prove ourselves and the capital markets around the world can flourish if we succeed.”
In her remarks, Schapiro listed the principles that should guide the decisions made by worldwide securities regulators, including protection of investors, ensuring that markets are always fair, efficient and transparent and protection of systemic risk. She also noted that corporations must address the issue of executive pay and said that the elimination of excessive compensation to executives will ultimately lead to long-term corporate health.
Schapiro’s remarks came as part of a panel discussion focused on improving the role of securities regulators in a changing global financial system. The panel was moderated by Mr. Hans Hoogervorst, Chairman, Authority for the Financial Markets, Netherlands and included Mr. Janichi Maruyama, Deputy Commissioner for International Affairs, Financial Services Agency , Japan; Prof. John C. Coffee, Adolf A. Berle Professor of Law, Columbia University Law School and Mr. William J. Brodsky, Chairman, World Federation of Exchanges; Chairman and CEO, Chicago Board Options Exchange.
The conference was hosted in Tel Aviv by the Israel Securities Authority (ISA) and the Tel Aviv Stock Exchange (TASE).
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Guardian.co.uk – No single hedge fund today poses a systemic risk to the global financial system, said a former partner at Long Term Capital Management (LTCM), as lawmakers continue to hammer out rules to control the industry.
Even though many funds are now much larger than LTCM, which collapsed in 1998 and received a $3.5 billion bailout to avert widespread financial chaos, Hans Hufschmid, currently chief executive at fund servicing firm GlobeOp, said prime brokers now act as an effective brake on hedge fund risk. "I find it hard to believe — I don’t think a hedge fund today is big enough to pose a systemic risk," he said.
West Palm Beach (HedgeCo.net) – The Alternative Investment Management Association (AIMA), announced plans to mobilise the world’s hedge fund industry on the European Commission’s draft directive for Alternative Investment Fund Managers.
“There are provisions in this directive with potentially serious consequences for managers, investors, service providers and advisers internationally." Andrew Baker, AIMA CEO, said, "As the global trade body for the industry it is right therefore that AIMA takes the lead in mobilising resources in order to secure the best possible outcome for the industry on the directive."
"The feedback we’re getting from our members, who manage more than 75% of hedge fund industry assets globally, is that the draft directive has created enormous confusion. Because of the lack of proper consultation the directive presumes a structure for the industry which bears little relationship to reality. Implementation in its current form could prove to be unworkable. It also appears to be in conflict with much of existing EC financial services legislation." Baker said.
"We will therefore call for urgent effort to be devoted to re-drafting this directive." Baker continued, "To achieve this, AIMA will be announcing a series of initiatives to mobilise the industry. We will not oppose everything in the directive; some of the provisions, such as manager authorisation and registration, are already supported by us and measures which increase transparency to assist the authorities in the understanding of systemic risk issues are to be welcomed."
"We want to work with the Commission, EU governments and the European Parliament on this. We are not opposed to the directive per se, we just want the final directive to be practical and realistic.” Baker concluded.
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West Palm Beach (HedgeCo.net) – In testimony before the House Financial Services Subcommittee; “Perspectives on Hedge Fund Registration”, the Managed Funds Association (MFA) announced its support for the new push for mandatory registration of managers with the SEC.
"Though hedge funds were not the cause of the ongoing problems in our financial markets and our economy, MFA and our members share the commitment of policy makers to enact measures that will help restore stability to our markets, strengthen financial institutions and restore investor confidence." Richard H. Baker, MFA President and CEO, said, "We believe supporting mandatory registration for investment advisers is just one of the many important steps that can be taken towards these mutually shared goals."
Baker’s testimony stressed that while hedge funds are important to the capital markets and the financial system, the relatively small size and scope of the industry, with approximately $1.5 trillion in assets under management, did not pose significant systemic risk. He also stressed that hedge funds are substantially less leveraged than banks, have outperformed the overall market and have not sought any federal assistance.
“A registration framework that overwhelms the resources, technology and capabilities of regulators will not achieve the intended objective, and will greatly impair the ability of the regulator to fulfill their existing responsibilities, as well as their new responsibilities.
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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
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Guardian Unlimited – European hedge funds believe capping the amount banks can lend them will be more effective in preventing systemic risks than direct regulation, but this is unlikely to satisfy politicians eager for tougher rules.
The funds are often based in far-away and loosely regulated off-shore centres, so a U.S.-style system to limit lending by prime brokers may be more effective to hem in any systemic risk from the opaque industry.
"Instead of targeting hedge funds themselves it would be more effective to target the providers of leverage," said John Donohoe, chief executive of hedge fund consultant Carne Consulting.
New York (HedgeCo.Net) – Hedge fund regulation was the hot topic at this past weekend’s meeting of European Union leaders, when German Chancellor Angela Merkel hosted a summit in Berlin discussing ways to curtail the financial crisis.
Merkel joined leaders from The Netherlands, Spain, France, Italy, England, the Czech Republic and Luxembourg to agree on a unified EU stance prior to London’s G20 Summit in April, where all the world’s leaders will come together to discuss the financial crisis.
"We have today underscored our conviction that all financial markets, products and participants must be subject to appropriate oversight or regulation, without exception and regardless of their country of domicile,” said Merkel. “This is especially true for those private pools of capital, including hedge funds, that may present a systemic risk," she said, although the details of how hedge funds should be regulated still need to be worked out.
English Prime Minister Gordon Brown has also expressed his belief that there should be tighter regulation, despite the fact that London is Europe’s premier center for hedge funds.
"Together we will support oversight of under-regulated sectors and I also support proper disclosure and transparency of hedge funds," Brown said earlier this month.
French President Nicolas Sarkozy agreed, saying, “We want regulation of hedge funds, and we’re not going to put up any longer with the bonus reward system of traders and bankers.”
The EU leaders are scheduled to meet again this Sunday.
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
Bloomberg – A group of hedge funds offered to increase disclosure to head off demands from politicians on at least two continents for more transparency.
“We know which way the wind is blowing,” said Andrew Baker, chief executive of London-based Alternative Investment Management Association, the industry’s largest lobby group. “We see a lot of this as inevitable and we’d like to put ourselves in a position to say, ‘You don’t have to drag this out of us.’”
European leaders meeting in Berlin on Feb. 22 said they want to subject the $1.4 trillion industry to more regulation because hedge funds “may present a systemic risk” to world economies, according to German Chancellor Angela Merkel.
Reuters – Leveraged loan prices fell on Wednesday as hedge funds facing redemptions and forced to cover short equity positions sold loans, traders told Reuters Loan Pricing Corp.
Leveraged loans have declined over the past week amid a rout in global markets that has led to the bankruptcy of Lehman Brothers and a $700 billion U.S. government plan to bail out the financial sector.
The loan credit default swap index, the Markit LCDX10, traded around 93.70-to-93.90 cents on the dollar on Wednesday, down about a point from Tuesday’s close. It hit a low of 93.60-to-93.80 cents on the dollar earlier in the day.
TXU Corp’s leveraged buyout loan was among several that traded down. Its term loan B2 fell to 86.75-to-87.25 cents on the dollar from 87-to-87.5 cents on the dollar on Tuesday afternoon.
