The day of reckoning for hedge funds may have arrived. Today the Securities and Exchange Commission meet to vote on increased supervision of hedge funds and private equity funds with assets of more than $150 million.
The aim of the new rule is to root out fraud in a field that has seen its reputational stock plummet as its profits soared in recent years. After the mortgage meltdown and the credit crunch in 2008, investment banks defended paying out huge bonuses to traders and find managers by saying that those same star players had to be lavishly compensated. It they didn't, these scorned traders would start their own hedge funds and take down the ailing banks and investment firms.
Along with the lure of running your own shop and making tons of money, hedge fund managers loved the fact that they could operate with little to no scrutiny from regulators. In the leafy suburbs of Connecticut -- the spiritual home of most hedge funds in the country -- fund managers do not like speaking with the media or answering to regulators. A recent report on 60 Minutes report on high frequency trading could only find one fund manager to speak about their high-speed operations. I can remember interviewing one hedge fund manager who wouldn't let me report his name, company name or what state his hedge fund operated in. The topic of my penetrating news story? Telephones.
In an interview with Reuters, one fund manager doesn't see this new oversight as the end of the world. "They are not going to be hard to comply with," said Ron Geffner, who works with hedge funds as a partner at Sadis & Goldberg LLP. "If people have adopted policies and procedures and try to live with them before they register, it will be less of a going concern."
After a hands-off era at the SEC under George W Bush, it will be interesting to see how a chastened and invigorated agency will handle the hedge funds going forward. Stay tuned.Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio