06 March 2007

US Treasury: Hedge Fund Rules Sufficient

U.S. regulators don't need new legal powers over hedge funds in order to protect investors or guard against 'systemic risk,' the assistant Treasury secretary for financial markets, Anthony Ryan, said. 'If the solution were as simple as granting additional regulatory authority, regulators would have certainly asked for it,', assistant Treasury secretary, told about 200 hedge fund managers and executives meeting in Greenwich.

'The fact of the matter is at this time, no regulator feels that it needs regulatory authority to achieve its goals of protecting investors or mitigating systemic risk.'

Hedge funds can invest in anything from commodities to real estate. Some hedge funds buy entire companies; others act like day traders and buy and sell stocks, but with billions of dollars at stake.

There are more than 9,000 hedge funds in the U.S. They traditionally have catered to the rich, but increasingly are luring less wealthy investors. Given their willingness to take on large risk for big rewards, hedge funds have been drawing increased scrutiny now that they have taken on a broader class of investors, including pension funds and university endowments.

The industry's future was discussed Tuesday at a forum sponsored by the Connecticut Hedge Fund Association and the state of Connecticut, which is home to many hedge funds.

Ralph Lambiase, director of the securities and investment division for the Connecticut Department of Banking, told the group that efforts to regulate the industry are driven more by emotion than common sense. 'I don't think that anyone here wants us to impose heavy-handed regulations,' Lambiase said.

In December, the Securities and Exchange Commission proposed an anti-fraud rule for hedge funds, making it clear the agency will pursue fund managers for improper activity. Although the SEC lost a federal court ruling last year that would have put hedge funds under its supervision, its narrower changes are not expected to be open to legal challenge.

Under SEC rules in effect since 1982, an individual must have at least $1 million in net worth or annual income of $200,000 to qualify to invest in a hedge fund. The SEC has proposed raising minimum requirements so that an individual's assets would have to include at least $2.5 million in investments, excluding a personal residence.

The Bush administration, meanwhile, is pushing for increased vigilance instead of new rules. The President's Working Group, formed after the 1987 stock market crash, last month recommended guidelines they said should be followed by fund investors and institutions such as banks and brokerage houses that do business with the funds.

The guidelines stress the need for more information so investment decisions are based on accurate and timely assessments.

A congressional hearing on hedge funds and the proposed guidelines is expected this spring.

Ryan remarks on hedge funds

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