After years of fighting off efforts by the Securities Exchange Commission (SEC) to increase its regulatory authority over hedge funds, the Managed Funds Association (MFA)announced not only support for mandatory registration of hedge funds with the SEC, but recommended a more comprehensive registration rule than what has been proposed by the Treasury.
MFA President and CEO Richard Baker said in a May 7 release, “Though hedge funds were not the cause of the ongoing problems in our financial markets and our economy, MFA and our members share the commitment of policy makers to enact measures that will help restore stability to our markets, strengthen financial institutions and restore investor confidence.”
The MFA did not fight the last registration rule, which was overturned in Federal court. It has sought instead to help shape what it saw as an inevitable increase in regulation following the current economic crisis and the Bernard Madoff scandal, though Madoff did not run a hedge fund.
“This proposed framework goes beyond that recently called for by Treasury Secretary Geithner,” Baker said. “The registration regime we are supporting today..., is more comprehensive and will subject the vast majority of investment advisors…to the SEC’s registration requirements.”
Baker’s comments were part of testimony before the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.
He stressed that while the $1.5 trillion hedge fund industry is important to our capital markets, it does not pose systemic risk. He also pointed out that hedge funds are significantly less leveraged than banks and have not sought government assistance.
Jeff Blumberg, partner at Drinker Biddle and a member of its investment management practice group, said a new registration rule makes sense if the goal is to register hedge funds but, “if the goal is to cut down on the amount of frauds, registration is not going to make much of a difference.”