SEC cautions on hedge funds again
Associated Press
Sunday, May 18, 2003
Washington — The head of the Securities and Exchange Commission reiterated concern about hedge funds, a traditional investment outlet for the wealthy that is increasingly luring small investors.
“I believe the time has come for us . . . to review hedge funds and how they are operated, managed and regulated. We are looking to ensure investor protection,” Chairman William Donaldson said a conference on hedge funds last week.
The SEC has been investigating hedge funds since last spring, after seeing an increase in fraud among the high-risk funds. The agency has brought several enforcement cases along that line in recent years.
The SEC also issued an “investor alert” in February, advising investors to check out the background of hedge fund managers as well as the fees that funds charge.
Like mutual funds, the speculative hedge funds pool investors’ money and invest it in various ways in an effort to get the highest return possible. Unlike mutual funds, they mostly are not registered with the SEC and therefore are subject to few controls.
Investors in hedge funds don’t receive the full protection — such as disclosure of fund information — afforded other investments under federal and state securities laws. About 5,700 hedge funds operate in the United States, with some $600 billion under management.
Donaldson sounded the same note of concern about protecting ordinary investors in testimony last month to the Senate Banking Committee. But he also said regulators shouldn’t go too far and impede high-risk investments that can offer high returns.
Legislation or rules shouldn’t dictate how hedge funds operate, and fuller disclosure by funds might be sufficient to stem abuses, he said.
