Now that the 111th Congress has been seated and the 44th President of the United States inaugurated, the first stirrings of hedge fund legislation and increased regulation have been sighted, with President Barack Obama, Treasury Secretary Timothy Geithner, and SEC Chairman Mary Schapiro all calling for more regulation of hedge funds.
On January 29, Senator Chuck Grassley (R-Iowa), with co-sponsor Carl Levin (D-Michigan) introduced S. 344, which was referred afterward to the Committee on Banking, Housing, and Urban Affairs.
The bill, known as the Hedge Fund Transparency Act, would amend the Investment Company Act of 1940 to require hedge funds to file annually and electronically with the SEC a statement with information including the primary broker and primary accountant, the minimum investment needed to get into the fund, the number of partners in the fund, and the total assets held by the fund. In addition to making this information available to the Commission, the bill would require that it be made available "to the public at no cost and in an electronic, searchable format."
While it is unclear whether this bill will ever see the light of legislative day, and while some increased regulation of such limited partnerships is likely, considering the tenor of the public and the expressed promises of the new President, what is clear is that this is a red herring of sorts.
Hedge Fund Research Inc. (HFRI), reported February 2 that some 55% of U.S. hedge funds are already registered with the SEC. Those firms, which manage 71% of all U.S.-based hedge fund capital, did so voluntarily. On a global basis, hedge funds already registered with the SEC, said HFRI, manage 60% of the $1.4 trillion in hedge-fund assets.
While there are indicators suggesting some hedge fund strategies may be turning around after their annus horribilis in 2008–HFRI said convertible arb funds rose 5.9% in January–that won't slow the push to regulate hedge funds.
