SEC Questions Whether Hedge Fund Accreditation is Enough

Despite industry support of a proposed rule raising the requisite assets investors need to buy into hedge funds, the Securities and Exchange Commission is now questioning whether more regulation may be needed, according to Bloomberg.

“The rulemaking doesn’t address the ongoing problem of the rapid growth of hedge funds and the lack of knowledge regulators have,” said former SEC Chairman William Donaldson in an interview.

Regulation and concerns about transparency among hedge funds had been a particular sore spot within the industry, and embarrassing to the SEC, whose Donaldson-era rules have been repeatedly overturned in court.

“It is an increasing concern not only in the United States, but to regulators around the world,” said Donaldson.

But Reuters reports that the European Union’s Internal Market Commissioner, Charlie McCreevy, sent a different message.

“For the present time, we don’t see what additional measures would be needed at European level,” he said during and interview at the annual World Economic Forum in Davos, Switzerland. European regulators have been portrayed as light on hedge funds.  “It’ a bit of a myth,” McCreevy said.

Back in the U.S., Donaldson said that regulators should zero in on market threats, citing last year’s $6.6 billion blow-up of Amaranth Advisors, a Greenwich, Conn.-based fund that made bad bets on natural gas.

Current Chairman Christopher Cox will address the Securities Regulation Institute during that group’s conference in Coronado, Calif., next week. Also at the conference will be Director of Enforcement Linda Thomsen, General Counsel Brian Cartwright, Chief Accountant Conrad Hewitt, and Director of the Division of Corporate Finance John White. Some speculate hedge funds will feature in the presentation.

In December, Cox said that the increased accreditation rules, which would raise the assets hedge fund investors would need from  $1 million to $2.5 million, “do a much better job of assuring that individuals investing in private funds are likely to have the knowledge and sophistication that’s necessary.”

Still, the topic remains a political hot potato. “There is a lot of pressure to so something,” said Sandra Manzke, chief executive of Darien, Conn.-based Maxam Capital Management.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.