SEC Appears Divided Over Hedge Fund, Mutual Fund Regulation

by Philip Morton, Investors Offshore.com

22 July 2003

Opinion appears divided within the US Securities and Exchange Commission as to the extent of the reforms needed to the hedge fund and mutual fund industries.

Reports last week appeared to suggest that the Commission was studying with interest a plan to require hedge funds to register with the SEC and be regulated by it.

However, speaking to Bloomberg at the weekend, Republican member of the regulatory body, Cynthia Glassman suggested that far from believing that hedge funds need to be more stringently regulated, several commissioners are leaning towards allowing mutual funds to employ some of the strategies utilised by their more loosely regulated counterparts.

'To the extent that there are benefits from hedge fund strategies, we ought to make it easier for the retail investors to get those benefits through the already regulated and registered mutual funds,' she explained, continuing: 'Letting them expand their strategies to better serve their shareholders makes sense to me.'

However, this suggestion has met with a lukewarm response from the mutual fund industry, according to Craig Tyle, general counsel for mutual fund trade group, the Investment Company Institute.

'Among our members, there does not seem to be a heck of a lot of interest in loosening the rules governing short selling by mutual funds,' he told Bloomberg, explaining that the industry would rather mutual funds continue to be viewed as low-risk vehicles.

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