SEC Tightens Reins on Hedge Funds
Source: Washington Post, David Hilzenrath (6/23/11)
"Funds won't have to bare their innermost secrets, but they will have to disclose their size and ownership."
Hedge funds are about to become a bit less mysterious.
Many will have to make limited disclosures to the Securities and Exchange Commission and answer to its regulators under rules the agency adopted Wednesday.
The SEC was acting at the behest of Congress and President Obama, who last year demanded greater oversight in legislation responding to the financial crisis.
The new requirements "will fill a key gap in the regulatory landscape," SEC Chairman Mary Schapiro said.
The funds won't have to bare their innermost secrets. But they will have to publicly disclose general information about their size and ownership, and who is auditing their books, among other matters.
To spotlight practices that might harm investors, the SEC said, the funds will have to reveal potential conflicts of interest, such as whether they pay anyone to send them clients.
Hedge funds, which often employ exotic strategies that can yield outsize profits, invest money for wealthy individuals and institutions such as endowments and pension plans.
As of early 2009, they managed $1.5 trillion, according to data cited by the Managed Funds Association, an industry group.
Managers or "advisers" of these private funds have been able to avoid registering with the SEC under a rule that exempts advisers with fewer than 15 clients, because each fund counted as a single client, even if it had scores of investors.
Many funds are already making voluntary disclosures to the SEC.
The legislation the SEC was carrying out, known as the Dodd-Frank Act, extends the expanded oversight to private equity funds, too.