Hedge Funds Need Greater Regulatory Scrutiny, Says Mutual Fund Chief

by Carla Johnson, Investors Offshore.com

22 June 2004

Pressure on the hedge fund industry to accept some form of registration with US regulators increased last week after the new chairman of mutual fund lobby group, the Investment Company Institute backed the SEC’s call for tighter scrutiny of the largely unregulated industry.

Observing in a speech last Tuesday that hedge funds were closely linked with recent scandals involving market timing in mutual fund shares, Investment Company Institute president Paul Stevens lent support to repeated calls by the chairman of the Securities and Exchange Commission chairman, William Donaldson for hedge fund registration.

“In reports about the scandals, it is often noted that market timing is not unlawful,” stated Mr Stevens whilst addressing the National Press Club, his first public speech since assuming the ICI presidency.

“As practiced by some hedge fund advisers, however, market timing was often done by stealth and deceit, in ways designed to frustrate the ability of mutual funds to detect and prevent it,” he added.

Stevens continued: “These were highly deliberate and predatory trading strategies, pursued largely by advisers to hedge funds that are not registered with the SEC, to pick the pockets of long-term mutual fund investors.”

The ICI chief rejected claims that more regulation for hedge funds will lead to a loss of business, and warned that an ever more uneven playing field was opening up between the tightly regulated mutual fund industry and lightly regulated hedge funds.

“SEC Chairman Donaldson has called for at least some scheme of registration for hedge fund advisors. His call should be heeded,” concluded Mr Stevens.

Recommended