Weekly Newsreel – All the hedge fund regulation that’s fit to print

Hedge Fund Regulation 20 Apr 2008

Boy: You sure gotta climb a lot of steps to get to this Capitol Building here in Washington. But I wonder who that sad little scrap of paper is?

Bill: I’m just a bill. Yes, I’m only a bill. And I’m sitting here on Capitol Hill. Well, it’s a long, long journey to the capital city. It’s a long, long wait while I’m sitting in committee, but I know I’ll be a law someday at least I hope and pray that I will, But today I am still just a bill.

Boy: Gee, Bill, you certainly have a lot of patience and courage.

Like the bill in the 1970’s “Schoolhouse Rock” TV segments, we’re all going to need a lot of “patience and courage” since it looks like the never-ending debate over hedge fund regulation isn’t going away any time soon.  Here’s the news from last week…

Phil Goldstein, the man who has taken on government officials on everything from hedge fund registration, 13F filings, and hedge fund advertising (see related posting), is reportedly championing a new industry advocacy group, tentatively called the “Rational Regulatory Policy Institute”.

It sounds like the recommendations from the President’s Working Group (PWG) may not be enough to satisfy skeptics like Soros…Apparently, we weren’t the only ones to note the excessive use of the word “should” in the recent hedge fund report from the President’s Working Group (see posting).  According to Reuters, Connecticut Attorney General Richard Blumenthal said the PWG plan “is one small step when giant strides are needed…The Treasury Department’s proposals for greater transparency and risk disclosure must be mandatory or they are meaningless.”

George Soros probably won’t have Goldstein on his Holiday greetings list this year.  Soros told a Brussels audience that he thinks “hedge funds need to be regulated like all other market participants” and that “there are some hedge funds that have been operating as unlicenced insurance companies by writing credit default swaps.”

Across the English Channel, the UK’s financial regulator says “not so fast“.  According to the Financial Times, “the FSA has stopped short of directly regulating the hedge fund and private equity industries…At the economic and monetary affairs committee public hearing, Dan Walters, director of retail policy and themes and sector leader for the FSA, said hedge funds themselves were outside of the FSA’s jurisdiction…” However, the FSA is quick to point out that they do intend to regulate the hedge fund managers themselves.

Regulation or not, UK pension plans remain keen on the diversification benefits of hedge funds. Thomson reports that State Street “argues there has been a dramatic shift in the way pension funds consider their investment strategies, and they are now embracing absolute return investments in a broader variety of guises.  [Joe] Moody [of SSgA] said pension managers are becoming more intolerant of middle-of-the-road strategies – focusing now on the separation of alpha and beta to deliver high returns.”

Meanwhile over in Sweden, regulators have moved to relax existing rules governing hedge funds.  A senior official with one of the country’s public pension funds lamented the 5% cap on alternative investments, “This is a problem for us since many alternative beta strategies are in the space of unlisted assets, or at least on the border…

While the issue of hedge fund regulation is never far from the top of the legislative agenda in Europe, the European Parliament recently gave the issue a boost with its “working paper” on hedge fund and private equity regulation.  That paper asked the following, somewhat pointed, question: “What is the rationale in having lightly or unregulated private pools of capital such as private equity funds and hedge funds operating in the market alongside tightly regulated institutions such as pension funds, insurance companies, banks and others?”

(For more alpha-centric news items on hedge fund regulation and more, check out the scrolling news ticker above – or our gigantic news archive.)

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