The Pension Protection Act of 2006, passed by both houses o Congress and awaiting a presidential signature, would increase the amount of money hedge funds can accept from employee benefit or pension plans.
The bill does not increase the “25% test” provision, which requires hedge funds that get more than 25% of their allocation from benefit plan investors to become subject to the fiduciary responsibility requirements of Erisa (Employee Retirement Income Security Act), but it will exclude from that calculation non-Erisa plans, such as church plans, foreign plans and government employee plans. The current rule required those non-Erisa plans to be included in the benefit plan investor definition.
“Absolutely, we would welcome an expansion of the 25% limit,” says Roger Fenningdorf, principal of Rocaton Investment Advisors, which has $240 billion in assets. Fenningdorf says Rocaton has allocated $14 billion throughout the last four years to various hedge fund strategies, some of which have bumped up against the 25% rule. “At times there have been constraints on Erisa capacity,” says Fenningdorf. “A large majority of our customers are pension plans. Additional capacity would be beneficial.”
Jack Gaine, president of the Managed Funds Association, could not say how much additional capacity would be created by the bill, but noted, “it could be significant.”
Tannenbaum Herpern Syracuse & Hirschtritt LLP stated in a letter to clients: “The Act would allow hedge funds to accept additional investment from Erisa plans, as well as governmental plans and non-U.S. retirement plans.”
Mother Rock LP, the energy hedge fund run by former Nymex President J. Robert “Bo” Collins, sent a letter to investors in early August informing them the fund would be “winding down” following large losses incurred in July. The fund, which mainly traded natural gas volatility spreads, earned 20% in 2005. It was down approximately 23% through June, when continued “strange behavior” in the volatility and calendar spreads led to additional losses, according to a source close to the fund. The source said the decision to wind down will allow the fund to exit positions in a more orderly fashion.
Pusateri goes to Fall River
Frank Pusateri, a legend in the managed futures industry with extensive expertise in evaluating commodity trading advisors, has joined Fall River Capital LLC.