SEC Commissioner Relaxed About Amaranth

by Carla Johnson, Investors Offshore.com

03 October 2006

Responding to the Amaranth debacle while on a European trip in late September, US Securities and Exchange Commissioner Paul Atkins said that no new regulations on hedge funds are needed.

Atkins said the SEC would continue its probe into whether Amaranth misled investors, but that rules to prevent a widespread systematic failure in the market had worked. "It looked like the system worked" with the broker "getting nervous about exposure and taking steps to ensure it did not grow," Atkins told reporters in Brussels.

As hedge fund Amaranth staggers towards liquidation after losing US$6bn - two-thirds of its value - in a week, after punts on energy futures went spectacularly wrong, it's one of those moments when hedge fund investors gulp and wonder if they have done the right thing after all.

Others are not so reassuring, however. Never a body to remain calm unless absolutely unavoidable, the US House of Representatives approved a bill in September that would require the President's Working Group on Financial Markets to study the impact of the $1.2 trillion hedge fund industry on the financial markets.

If signed into law, the legislation, known as the Hedge Fund Study Act, would require the working group to formulate recommendations regarding hedge fund disclosure requirements. Republican Rep. Mike Castle of Delaware, who introduced the bill, stated that: "Hedge funds are now a $1.2 trillion industry and can be high-risk, high stake investments."

"While usually targeted to wealthy investors, hedge funds are seeing an increase in ties to pension plans. Regulators need to explore hedge funds and the potential risks they pose to financial markets and investors. Transparency in our financial system is important for market discipline and investor confidence."

Castle's legislation would examine the growth of pensions investing in hedge funds, and whether investors are adequately protected against the risks associated with their investments. It would also require agencies to decide which type of information hedge funds should disclose to regulators and the public and the type of oversight members of the President's Working Group should have over the hedge fund industry.

Investors in Amaranth want what's left of their money back as soon as possible; but most of them are locked-in and it's up to the fund to decide when to pay them out. Amaranth admits that it has received substantial redemption requests and promises to come up with a repayment plan very soon. Apparently Amaranth managers have told some clients in face-to-face meetings that it will either liquidate itself altogether or sell out to an institution.

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