The Hedge Fund Transparency ActOn January 29, 2008 The Hedge Fund Transparency Act was sponsored by Senators Carl Levin and Charles Grassley. As the name implies, the purpose of the act is to allow more transparency and disclosure in the hopes that some of the current hedge fund disasters can be avoided. By requiring registration of more hedge funds, it is likely some of the current hedge fund blow-ups could be avoided before it is too late, meaning less people will be hurt by fraudulent investment advisers. However, there were plenty of warning signs with Bernie Madoff, whom the SEC had even examined and been warned of, yet Madoff still caused an international disaster that will probably take years to sort out. Generally speaking, under current SEC regulations an investment manager (also referred to as a hedge fund manager even if no hedging strategy is even being used) who holds himself out publicly is required to register with the SEC as an investment adviser. If the investment adviser does not hold himself out publicly and advertise his services, he is exempt from registration as long as during the course of the preceding twelve months he has had fewer than fifteen clients Regulations governing investment adviser/hedge fund managers can be found in the Investment Advisers Act of 1940. It will be interesting to see whether or not the Senate is going to target larger hedge fund managers or just all hedge funds in general. It seems that most of the current hedge fund problems have been caused by the larger funds. Requiring all hedge fund managers to register, regardless of the amount of assets under management would greatly increase the number of registrations. This in turn would require the SEC to increase the size of its investigative department. If The Hedge Fund Transparency Act has the effect of preventing small hedge funds from launching in 2009, this could prove to be a serious mistake. The problem that develops could be that existing hedge funds will only get larger and magnify liquidity and market manipulation issues. Creating a barrier to entry for small fund managers is the last thing we need in 2009. The economy is more likely to react favorably if small hedge fund launches increase in 2009. The same can be said about small boutique brokerage firms that need to fill the void caused by the loss of Bear Stearns, Lehman and others. The financial industry needs job creation and let’s hope 2009 brings many new players into the financial field. Another concern, is thatThe Hedge Fund Transparency Act could affect companies raising capital. Many small hedge fund managers use a strategy of investing in small companies. Related Articles Reverse Merger Funding Requests
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