Hedge Fund Industry: Cha-Cha-Cha-Changes …

As a vendor of compliance-related services - it's our job to keep up on the regulations. So that's why we've been keeping a close eye on the debate over and legislation surrounding hedge fund registration. We were around in 2006 when the ruling was passed and then subsequently vacated by the U.S. Court of Appeals for the District of Columbia Circuit.

But with the recent financial scandals - what's old is new again. While the Senate is looking closely at the Hedge Fund Transparency Act proposed by Senators Chuck Grassley, R-Iowa, and Carl Levin, D-Mich in January of this year, Congress is now focused on HR 711. This bill, sponsored by Reps. Michael Capuano, D-Mass. and Michael Castle, R-Del. requires hedge fund managers to register as investment advisers.

According to an article in Securities Industry News, there are big developments with HR 711. The Alternative Investment Management Association (AIMA) and Managed Funds Association (MFA) announced that they will support "registration of investment managers - including hedge fund managers - with the Securities and Exchange Commission."

As the article notes,

"Such a process of registration ... creates a relationship and dialogue which supports greater understanding of hedge fund activities," AIMA chairman W. Todd Groome told the House Subcommittee on Capital Markets [late last week].

However the article goes on to say that some in the hedge fund industry don't think HR 711 goes quite far enough ...

At the hearing, James Chanos, chairman of the Coalition of Private Investment Companies, noted that hedge funds lost an average of 18.3 percent last year--their worst performance since 1990--as assets fell from $1.93 trillion to $1.41 trillion. Chanos said he does not think registration as envisioned by the House bill will provide needed protections. "Using the Advisers Act as the basic template for regulation will ultimately prove ineffective to mitigate systemic risk," he said. "We believe that the twin goals of improved investor protection and enhanced systemic oversight could be better achieved with a stand-alone statute tailored for private investment funds."

"We cannot have major players in the financial world operating completely in the dark and answerable to no one," said Capuano. "This bill is simply a beginning."

I couldn't say it any better myself, what a beginning indeed. And, so the debate continues. It will certainly be interesting to watch this story unfold in the coming months.