US - The Securities and Exchange Commission (SEC) has come under fire from industry bodies over its decision to regulate hedge funds with the US Chamber of Commerce deeming the move "unnecessary".
The commission voted 3-2 to adopt a recommendation to impose mandatory investment adviser registration requirements on hedge fund managers.
The US Chamber of Commerce accused the SEC of “rushing” the rules into effect.
“This rush to regulate could have significant negative implications for the strength of the capital markets and our overall economic health, without adding any new benefit or protection for investors,” said David Hirschmann (pictured), chamber senior vice president.
“The SEC has overreached its authority and crafted a rule for a problem that does not exist. We share the Commission’s goal of protecting investors’ interests and detecting fraud, but layering on unnecessary regulations is not the answer.”
Managed Funds Association (MFA) – a trade association representing those specialising in alternative investment strategies – said the move would result in “unnecessary burdensome costs to the hedge fund industry, potentially causing a chilling effect on hedge fund activities that will adversely impact hedge fund investors and the financial system as a whole”.
Presenting the case for regulation, SEC director, division of investment management, Paul Roye, argued the need to monitor the rapidly growing industry. It is estimated that hedge funds have grown by 260% in the last five years with assets of approximately US$870bn.
Roye stressed the move was not an attack on the industry.
“Registration under the Advisers Act will give use the tools we need to monitor the activities of hedge fund advisers without imposing burdens on the legitimate investment activities of hedge funds or interfering with the important role that hedge funds play in our financial markets,” he said.
Meanwhile, the Investment Company Institute (ICI) expressed its support for the decision.
“We strongly support today’s actions by the SEC, in light of the significant implications that the dramatic growth of hedge funds has for all participants in our capital markets,” president Paul Schott Stevens said yesterday.
“Requiring hedge fund advisers to register with the SEC seems altogether prudent in light of the record before the Commission,” he added.
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