By Collins, Daniel P.
Futures (Cedar Falls, IA) , Vol. 33, No. 11
One day after the Securities and Exchange Commission voted to propose a requirement that hedge fund managers must register with the SEC under the Investment Advisers Act of 1940, the Senate Banking Committee held hearings in which a compromise was suggested in this heated debate.
James Chanos, president of short selling fund Kynikos Associates LP, suggested the SEC impose rules to obtain the information it needs to understand the industry better and allow it to protect investors but allow hedge funds to retain their exempt status.
Hedge fund managers would retain the exemption contingent on the SEC receiving the information it wants. Among other requirements, funds would certify minimum investor qualifications and have an annual audit conducted by an independent auditor and adopt written supervisory procedures and objective and transparent valuation standards.
"We believe our suggestion will reduce the risk of undue reliance by investors on SEC oversight, conserve important SEC resources and reduce the risk that registration will grow, over time, into a creaky and burdensome form of regulation," Chanos told the committee.
Under the proposal fund managers registered with the Commodity Futures Trading Commission as commodity pool operators or commodity trading advisors would not need to be certified. CFTC General Counsel Pat McCarty testified that CFTC registrants should not face dual registration, pointing out that more than 50% of hedge funds with more than $1 billion under management have CFTC reporting requirements.
Much of the criticism of registration centered on an apparent disconnect between SEC goals and what registration is likely to accomplish. Chanos' recommendations will provide the SEC with the information it seeks without the promise of protection the SEC has already shown it cannot deliver.
With both sides of the issue digging in their heels, a compromise allowing the SEC to save face would make sense.
Comparing index returns June YTD S & P 500 Total Return Index +1.94% +3.44% Lehman Brothers Treasury Index +0.74% +0.10% Morgan Stanley EAFE Index +1.99% +3.04% Futures Public Funds (June) -4.28% -8.25% June's top CTAs June YTD Barclay CTA Index +2.08% -1.80% Barclay Sub-Indexes: Agricultural Traders +2.03% +14.24% Currency Traders -0.99% -3.18% Diversified Traders -3.56% -4.30% Financials and Metals Traders -1.26% -3.26% Discretionary Traders -0.13% +3.76% Systematic Traders -2.90% -4.57% More than $10 million under management 1. Beacon Mgmt. Corp. (Meka) +7.38% -6.01% 2. Northbridge Capital (Sigma 3X) +5.04% +5.71% 3. Oxeye Capital Mgmt. Ltd. +4.60% +22.31% 4. Vega Asset Mgmt. (Select) +4.40% +8.89% 5. Global Advisors L.P. (Discretionary) +4.05% +18.54% Less than $10 million under management 1. CKP Associates +35. …