November 13, 2006
Are Our Pension Funds Safe?
I guess we all really need to get a grip on this regulation issue. One time you have just about everyone hankering for regulation, then you have U.S. regulators asserting that there isn't a need for further regulation of hedge funds at this time. And then the SEC gets fidgety and is wondering if it can strengthen the regulation drive and make it more effective.
The SEC now plans to propose rules at a meeting next month raising asset requirements for investing in hedge funds. This can be seen mainly as a reaction to the Amaranth collapse. SEC Chairman Christopher Cox still hasn’t specified how the agency plans to fulfill its pledge. However, he did seem clear about the fact that he wanted the mom-and-pop kind of investors to stay away these ‘highly risky’ forms of investment.
While the Amaranth collapse was big, most hedge fund investors escaped unharmed from this tragedy. But this was just a case of plain luck and lawmakers fear that a hedge fund meltdown could put pension fund investments at risk. Investments in the unregulated hedge fund industry could put the retirement security of American workers in jeopardy. To protect investors, the SEC also plans to propose a new hedge-fund antifraud rule.
However, the SEC’s track record with regulating the hedge fund industry hasn’t been too good. In June, a federal appeals court shot down rules requiring hedge funds to register with the SEC. The agency wanted funds to report their size, number of employees, and types of clients, and submit to random inspections.
Probably, these increased calls for regulation stem from the fear that given the large amount of money in the business – around $1.5 trillion world-wide – there is a very high scope of indiscretion and even unethical business practices.
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