Interview: Financial reform law may not raise cost for hedge funds

08:09, August 04, 2010      

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Since U.S. President Barack Obama signed the financial regulatory reform act into law on July 21, many people in Wall Street have been asking whether the new law would raise cost for hedge funds.

In a recent interview with Xinhua, Steve Loren, chairman of Sustainable Investing Committee of NYSSA, said that if the information is well safeguarded, dissemination to the wider public is limited or time lagged, the disclosure of trading and position information to the SEC may not jeopardize hedge funds' competitive advantage.

Under the Dodd-Frank Act, U.S. investment advisors with 150 million U.S. dollars or more will register with the U.S. Securities and Exchange Commission (SEC). Those with assets between 25 million dollars and 150 million dollars will register with states. The registered hedge funds managers will also be required to provide the agency with certain information related to their trading.

"I do not personally believe that the proposed registration and disclosure requirements will adversely affect hedge funds' ability to earn superior returns, but then again, the devil is in the details, so we will have to wait and see," Loren told Xinhua.

"Many believe that the impact on the industry from the new regulations will be increased costs of doing business. This will impact profitability in the aggregate. Mechanisms that have the industry bear the cost of its own policing are not addressed by the law, and this is another area where the public would be inappropriately bearing costs," he said.

The SEC had issued a rule back in 2004 requiring the registration of hedge funds, but that rule was struck down by the U.S. court of appeals in 2006. The main reason is that the court felt the SEC did not have the authority to require registration without an act of Congress.

"At this time many hedge funds are registering in any event voluntarily because many large investors, like pension funds, are asking for this," said Loren. "In fact, about half of hedge funds with assets at this level are registered."



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