The Managed Funds Association (MFA) has called upon the SEC President’s Working Group on Financial Markets to assess the vast amount of information on hedge funds currently available to its constituent members – namely the Board of Governors of the Federal Reserve System, the Department of the Treasury, the Commodity Futures Trading Commission, and the Securities and Exchange Commission (SEC) – with a view to facilitating the sharing of that information among them. MFA asserts that most, if not all, of the information sought by the SEC is already available.
The MFA opposes the SEC’s proposal to impose additional investment adviser regulation on hedge fund managers for several reasons, including the fact that most, if not all, of the information sought by the SEC is already available to other federal financial regulators. In addition, the MFA maintains that the implementation of the SEC proposal will result in unnecessary, burdensome costs to the hedge fund industry, potentially reducing hedge fund activities, with adverse consequences for hedge fund investors and the financial system as a whole.
“We believe that an analysis of the information available on hedge funds makes good policy sense, and that such a review should be undertaken prior to the SEC’s acting upon its rule proposal,” says MFA President John G. Gaine. “An efficient use of available sources of information will enable regulators to protect the interests of investors without imposing unnecessary burdens and costs on the hedge fund industry, its investors, and taxpayers.”
In its comment letter, filed yesterday, and posted on www.mfainfo.org, MFA maintains that the new regulatory regime contemplated by the SEC’s proposal is not justified by the three reasons cited in the SEC’s release – growth of the industry, incidence of fraud, and “retailization” of the industry. MFA claism to demonstrate in detail that the SEC’s rationale for the proposal is supported neither by empirical data nor by logic.
In its comment letter, MFA maintains that an appropriate regulatory framework for the hedge fund industry already exists and that the highly controversial SEC proposal goes far beyond “mere registration”. Given that the SEC’s proposal would adversely impact hedge funds, investors and capital markets in a material way, MFA believes that a meaningful consensus should be reached prior to unilateral SEC action.
MFA stresses that the establishment of arrangements for sharing the hedge fund information that is available to the regulators that comprise the PWG would satisfy the SEC’s objectives without the attendant costs of the SEC’s proposal. MFA has offered to work with the members of the PWG to facilitate their review of available information in an effort to help them achieve their respective policy objectives.
Importantly, MFA believes the SEC has grossly underestimated the potential quantifiable costs and impact of its proposal on hedge funds, their investors and the capital markets. The greatest costs, however, could be those that cannot be quantified. “The unquantifiable costs of the chilling effect that would result from the SEC’s proposal are likely to be significant not only to our financial system in terms of flexibility and liquidity, but also to the hedge fund industry’s investors in terms of performance and the risk-return profile they seek,” said Mr. Gaine.
MFA also joins with other comment letters in questioning the SEC’s authority to implement its proposal given existing legal precedent and historical interpretation of the related regulations and legislation by both Congress and the SEC.