Hedge Funds Becoming Transparent, Says Montgomery

by Carla Johnson, Investors Offshore, London

13 June 2002

Just two weeks ago, new Chairman of the US Securities and Exchange Commission, Harvey L Pitt, addressed the 2002 General Meeting of the Investment Company Institute last Friday, talking about "negative forces afflicting our securities markets, that have eroded the critical reservoir of investor confidence" and "the lack of public confidence in the securities industry, the accounting and legal professions, and those of us who regulate them."

Referring to hedge funds, the Chairman noted that: "Private investment funds are structured to avoid direct regulation. By all accounts, private investment funds have experienced a seismic boom in both number and total assets under management. But, since these entities are not subject to reporting requirements, the information we have about them is sketchy. We are concerned about the implications flowing from the growth in these private investment funds. Accordingly, we will seek a better understanding of the issues currently affecting these vehicles by commencing a formal fact-finding investigation to enlighten us about:

Perhaps Mr Pitt can relax a little, as according to speakers at a press event hosted by Montgomery Asset Management in New York on Tuesday, the transparency of hedge fund portfolios is increasing rapidly as the industry begins to cater to mainstream investors.

Joseph Nicholas, chairman and chief executive of HFR Asset Management, a hedge fund research firm, said that the eagerness of hedge funds to become part of hedge fund indexes is causing many funds to give up their secrecy and offer transparency. Nicolas said that a large number of funds already offer real-time information on their pricing and many disclose their portfolios regularly. "It's not required from the regulatory standpoint, but it is coming out of the market," he said.

Bill Santos, chief marketing officer of Montgomery, said a fund registered with the Securities and Exchange Commission is required to disclose portfolio information twice yearly, and needs a board or advisor to be responsible for monitoring the pricing of its portfolio.

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