SEC Hedge Fund Recommendations Expected This Week

by Phillip Morton, Investors Offshore.com

29 September 2003

According to a Wall Street Journal report, the Securities and Exchange Commission (SEC) may publish its long awaited report on regulation in the hedge fund industry this week, and is likely to recommend some kind of registration system in the hitherto lightly regulated sector.

Such registration will give the SEC greater powers to audit hedge funds, and will help the regulator to gain greater insight into how the secretive industry invests its clients' money. It may also help to prevent a repeat of recent scandals, such as the allegations against Canary Capital Partners, which have sullied the reputations of the hedge fund and mutual fund sectors.

However, whilst the WSJ reports that SEC Chairman William O. Donaldson is keen on the idea of tighter regulation, it seems that there is not unanimity amongst senior SEC officials with regard to such a move. Of the five SEC Commissioners, Cynthia Glassman and Paul Atkins are apparently not sold on the idea of more regulation, arguing that it would stretch the Commission's resources and clash with other initiatives in the mutual fund sector.

Meanwhile, others argue that the proposals will not affect the way that hedge funds operate other than giving them extra paperwork to file.

The report is expected to contain details on trends in the hedge fund industry and reports on incidences of fraud and wrongdoing. Additionally the SEC is thought to have examined the issue of mutual funds employing hedge fund strategies.

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