Obama Administration Takes up Hedge Fund Regulation

July 16, 2009 (PLANSPONSOR.com) - The Obama administration has sent legislation to Congress which calls for the Securities and Exchange Commission (SEC) to oversee hedge, private equity, and venture capital funds.

By registering with the SEC, the funds’ books would be open to federal inspection and they would be subject to disclosure requirements to investors and creditors, the Associated Press reports. The new proposal “would help protect investors from fraud and abuse, provide increased transparency, and provide the information necessary to assess whether risks (of the funds) … pose a threat to our overall financial stability,” the Treasury said, according to the AP.

The news report said a similar bill proposed by Senator Jack Reed (D-Rhode Island), chairman of a key Senate Banking subcommittee would require advisers of such funds to register with the SEC if they have at least $30 million in assets under management.

A Connecticut measure that would have required hedge fund regulation at the state level, died in the state House when it was not voted on before the close of the 2009 session (see CT Hedge Fund Bill Dies without a Vote ). The hedge fund industry opposed the state’s effort, saying regulation was best taken up in Washington.

Officials of the groups representing hedge funds and private equity funds expressed support for the administration’s regulation proposal.

However, venture capital firms, which invest in startup companies that are run by entrepreneurs, did not. “We agree that those entities and industries which could cause financial system failure should be better monitored so that the events of 2008 are never repeated,” said Trevor Loy, the founder and general partner of Flywheel Ventures based in Santa Fe, New Mexico, according to the AP. “However, venture capital is not one of those industries.”