House Passes Hedge Fund Study Measure

A bi-partisan bill directing the President’s Working Group on Financial Markets to conduct a study and report to Congress on the hedge fund industry recently passed the House by voice vote. The Hedge Fund Study Act, HR 6079, has the support of House leaders and represents an effort by Congress to learn more about both the risks and benefits of hedge funds in light of their explosive growth. While the numbers fluctuate, there are an estimated 8000 hedge funds managing approximately $1 trillion in assets. The bill has been received in the Senate and, in order to become law, would have to be passed by the Senate during the lame duck session of Congress next month. I believe that there is a good chance that this bill will pass the Senate and become law.

I think that there is a sense in Congress that they must be seen as doing something to address the hedge fund issue this year. And certainly, giving the Working Group an order to study and issue a report on hedge funds is the least controversial of any of the measures currently pending and the one with the best chance of passing in the waning days of the 109th Congress. The industry even supports the measure, with the Managed Funds Association applauding its passage in the House.

This is not to question the sincere concern among some members about the issues surrounding the explosive growth of hedge funds, particularly the number of pension funds that invest in hedge funds. A report on the interface between pension funds and hedge funds is particularly important to Rep. Barney Frank, the Ranking Member on the Financial Services Committee, who vowed to deal with the issue further next year. Mr. Franks’ vow is important because some speculate that he is slated to become the chair of the committee if the Democrats retake the House.