Why us? That’s a good part of the response from the hedge fund industry to a Senate bill that would make public some of the information hedge funds traditionally hold close. “It’s another layer of bureaucracy that means a lot to most shops . . . a material cost, year in and year out,” says David Goldstein, a partner at White & Case, a New York law firm whose clients include many hedge funds.
But the objections may already be moot; the bill, called the Hedge Fund Transparency Act, has bipartisan support right out of the gate. One of its sponsors, Charles Grassley, is a Republican; the other, Carl Levin, is a Democrat. Rolled out in late January, the bill is part of broader reforms being put forth in Washington in reaction to the deepest recession in decades. The movement (see “Under Siege,” October 2008), which Goldstein concedes has populist appeal, has included questions about the very framework in which hedge funds operate.
“You’ve got to ask how anyone in their right mind could believe that the current regulatory exemption for hedge funds makes sense,” Levin said in a speech introducing the bill. Grassley added this: “A major cause of the current crisis is a lack of transparency.”
Backers have pointed out that even some hedge fund managers have called for more regulation, most notably George Soros, who in testimony before Congress in November said that hedge funds were “an integral part of the bubble that now has burst.”
The act would require hedge funds with more than $50 million in assets to register with the Securities and Exchange Commission and annually divulge such details as asset valuation, who invests in the fund, and how management and ownership are structured.
Many managers currently avoid registration as part of an exemption for investment advisers with fewer than 15 clients. Goldstein says the bill treats hedge funds too much like mutual funds. “If you’re an investor supposedly sophisticated enough to assess a hedge fund’s risk,” he asks, “what is the point of publicly disclosing your role?”
