New Hedge Fund SEC Reporting Rules

Yesterday the U.S. Securities and Exchange Commission finally released its long-anticipated rules for hedge fund reporting.  As I have long argued regulators cannot do their job if they are blind to the risks in the financial system.  Because of QIB (qualified institutional buyer) rules hedge funds, private equity funds and venture capital funds have lone eluded regulations aimed at increasing regulatory transparency.

From my point of view it’s difficult not to be a critic of a capitalism that believes in an asymmetry of information existing in the marketplace.  The fact is that the playing field in not level for sophisticated and individual investors.  This takes many forms, but one of the principle differences is an uneven amount of regulatory scrutiny and information disclosure.

Today’s rules specify that:

• Hedge funds, private equity funds and financial advisers that manage more than $150 million must register with the SEC.
• These firms must turn over critical financial information, including information about investment holdings
• Venture capital firms are exempt from the requirements
• The rules go into effect 30 March, 2012

It is important to note that , while the SEC passed these rules, the vote was just 3-2.  In other words, that regulatory transparency is a necessary value in financial markets is barely considered a virtue.  Despicable.

I consider this to be a gigantic Robin Hood victory whose full effects won’t be known for years and years.  I also fully expect that there will be lots of whining on the part of those opposed to the rules.  After all, if you are used to ignoring regulatory scrutiny for the benefit of a handful of wealthy clients, why would you want greater financial security whose sole benefit is that everyone else besides you experiences greater market safety?

Jason