Hedge Funds Look to Minimize Tougher Regulations
Barney Frank, Chris Dodd
The Senate is on the verge of passing landmark reform of our nation’s financial service regulation that will have little impact on hedge funds. The only new rule specific to hedge funds is the requirement to register with the Securities and Exchange Commission. Only hedge funds with books exceeding $150M would be obliged to register. Currently, 55% of hedge funds have already registered with the SEC.
“The exemption that most [hedge funds] rely on now is the less-than-15-clients exception, and that is being removed from the Advisors Act,” explains Patrick Shea, managing director of HedgeOp Compliance, which advises fund managers on compliance issues. Now, managers who hope to grow larger than $150 million know they will have to deal with the registration process at some point, he says.
Another aspect of the regulations that will affect the hedge fund market is the watered-down Volker rule, which was originally designed to keep banks from putting any of their own money in hedge funds and private equity funds, or to trade like them with proprietary trading desks. Under the version that survived the House of Representatives-Senate conference committee, bank holding companies will be permitted to invest up to 3% of their capital in alternative investment funds.
Evaluating the possible impact of the new rules is difficult at this stage, says Jack McDonald, president and CEO of prime broker and hedge fund administrator Conifer Group.
“I think part of it is the uncertainty around what it’s actually going to mean in the end,” he says. “I think the question is, will the bark be worse than the actual bite?”
“You would mitigate concerns about banks competing with their customers” by booting banks out of the alternative investments space, he says. On the other hand, he doesn’t have a problem with banks having distinct and separate asset management arms, including those with hedge fund units.
The impact of the Dodd-Frank bill—named for its primary sponsors, Sen. Christopher Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.)—especially on the alternative investments industry, remains an open question.
Weighing in at over 2,300 pages, the proposed legislation—which is expected to land on President Barack Obama’s desk tomorrow, after three Republican senators from New England agreed to support the compromise bill—will touch most aspects of the financial markets, including the question of banks “too big to fail,” the riskier activities of commercial banks via the Volcker rule, over-the-counter derivatives trading and more.
Shea has already seen an increase in the number of requests from fund managers for the compliance firm’s services. But many managers, under pressure from their investors, are already voluntarily conforming to the standards of the Registered Investment Advisors Act, he adds, so the job of actually registering won’t be so onerous for them.
Related posts:
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The Securities and Exchange Commission has asked hedge funds for comments on regulations. ...European Union Approves Stricter Financial Regulations
...the European Union’s Basel Committee on Banking Supervision rolled out a package of reforms to help prevent a recurrence of the Lehman disaster....Congressional Momentum Growing to Ban Hedge Funds From Banks
If two Democratic senators get their way, the “Volker Rule” provision of current financial reform legislation will take effect much sooner than anticipated. ...Germany In About-Face Regarding EU “Passport” Regulations for Hedge Funds
Germany has sided with France in an attempt to remove the “passport” from the regulations under debate, imperiling the future of this initiative. ...SageTree Seminars to Teach Preparing for Compliance with Investment Advisers Act
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This entry was posted on Thursday, July 15th, 2010 at 12:01 AM and is filed under Hedge Fund Regulatory News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
