Wednesday, January 21, 2009

SEC Commissioner Calls for Legislation to Register Hedge Fund Advisers

SEC Commissioner Luis Aguilar has called on Congress to pass legislation mandating the registration of hedge funds so that the Commission can obtain at least basic information about the funds and their advisers. Because neither hedge funds nor hedge fund advisers are required to be registered, he explained, the Commission lacks meaningful information about these entities, such as how many hedge funds operate in the United States, the size of their assets, and who controls them.

In remarks at a recent NASAA seminar, he also emphasized that, because hedge fund advisers are not subject to periodic examinations like registered investment advisers, the staff does not have the opportunity to identify misconduct prior to significant losses occurring. And, importantly, the argument for regulation is reinforced by the fact that retirement assets have been increasingly invested in hedge funds and that hedge funds are such significant players in our capital markets.

In June of 2006, a federal appeals court vacated an SEC rule requiring hedge fund managers to register under the Investment Advisers Act and comply with adviser regulations, including filing disclosures, adopting a compliance program and a code of ethics, and being subject to SEC examinations. As a result of the court’s ruling, the Commission currently lacks tools to provide effective oversight and supervision of the hedge fund industry. Thus, the commissioner asked Congress to amend the Investment Advisers Act to clearly provide the SEC with authority over hedge fund advisers.

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