SEC Mulls Major Changes For Hedge Funds

by Philip Morton, Investors Offshore.com

31 January 2003

The US Securities and Exchange Commission (SEC) is reported to be planning to implement changes in the way hedge funds operate and are regulated, under the stewardship of incoming SEC chairman William Donaldson.

The Commission is nearing the end of an eight month investigation into how the lightly-regulated funds operate amid concerns that small and often inexperienced investors are getting out of their depth:

'The investing public is susceptible,' SEC Commissioner Roel Campos observed this week. 'At the minimum we may need more disclosure about the risks.'

Speaking to the Wall Street Journal yesterday, sources close to the investigation revealed that options for change which have been discussed by the SEC include: obliging hedge fund managers to register with the agency as investment advisers, imposing stricter regulations on who can buy the funds, slowing down the number of hedge fund vehicles available to smaller investors, and changing the way in which the funds market themselves so that investors are provided with better information about their performance and assets.

Although, according to the WSJ, it will be up to Mr Donaldson to decide over the next few months which, if any changes he wants to pursue, there is likely to be a great deal of pressure on him to act decisively:

'Given the recent enforcement cases and investigations aimed at hedge funds, it's hard to believe that the incoming new chairman would not take some sort of action,' former director of the SEC's investment management division, Barry Barbash told the business daily.

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