John Gaine, president of the Managed Funds Association, said the current regulatory environment concerning hedge funds is “calm,” Dow Jones reports. But he warned attendees at the MFA Network 2007 Conference in Key Biscayne, Fla., recently that one misstep, and the industry could face a rash of new rules.

In particular, Gaine pointed out recent comments by Connecticut Attorney General Richard Blumenthal that hedge funds “remain a regulatory black hole.”

Barry Barbash, former head of the SEC’s division of investment management and currently a partner with Willkie Farr & Gallagher, said that “the perception continues to be that there are these vehicles out there that operate in a world that is not transparent enough. I fear we haven’t seen the end of regulation.

“What would concern me right now [is] if there were a crisis, we’d see more regulation,” Barbash continued. And if the SEC fails to devise new regulations, it’s almost certain that it will bring enforcement cases, he said.

However, Gaine and other speakers said that the recent initial public offering of Fortress Investment Group, increasing investments by institutional investors and the continued registration with the Securities and Exchange Commission by many hedge funds despite the courts striking down a rule requiring them to do so, will naturally bring about more transparency.

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