MSN MoneyCentral – The Securities and Exchange Commission is being far more rigorous than expected in its inspection of hedge fund advisers since new rules were introduced requiring advisers toregister with the regulator, according to industry participants.
The registration requirement is part of the SEC’s push to increase its oversight of hedge funds, which have grown in the past 15 years from a small fraternity of low-profile managers to a $1,500bn industry.
Any SEC-registered firm is subject to potential examination, although some hedge fund managers have expressed concern that the regulator would use the hotly debated registration process as a way of probing more deeply into the hedge fund industry. “The officials asked me if I know anyone who isn’t registered who should be, and if there were any problem areas we should be looking into,” said the president of one hedge fund broker-dealer in Greenwich, Connecticut, whose firm, registered for five years, was examined this month.
Jedd Wider, an attorney at Morgan Lewis, a New York firm that counts many prominent hedge funds as clients, said 10 to 15 of his clients had been examined since the February 1 registration deadline. While the level of scrutiny was varied, “a number of inspections by the SEC have been extremely thorough, which leads one to believe that the SEC is clearly taking its role, especially post-registration, extremely seriously”.
In testimony to the Senate banking committee on Tuesday, Christopher Cox, SEC chairman, said the regulator was using registration data to determine the scope of its jurisdiction to regulate the funds. “We’re also training our inspectors specifically for the purpose of understanding how to inspect hedge funds,” he said. “This is a new emphasis for the commission. We’re devoting significant resources to it.”
Asked if the SEC was stepping up its investigations, John Heine, an SEC spokesman, said: “Our risk-based examinations are progressing apace.”
Mr Cox said 2,400 investment advisers had registered with the SEC by the February deadline, covering more than 11,500 hedge funds with assets of almost $2,000bn. About half of those registered had done so before the requirement took effect.
