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Money Managers Say Regulation of Hedge Funds Not Needed

Tuesday, 13 Mar 2007 | 2:34 PM ET

Wall Street money managers told a House committee that hedge funds should disclose more to their bankers and improve their risk management but not be subject to mandatory registration, CNBC’s Melissa Lee reported from Capitol Hill.

The House Financial Service Committee is conducting hearings on proposed regulation of hedge funds. There is concern that the actions of hedge funds could affect individual investors who don’t know how the money has been invested.

“We are now concerned about the inadvertent consequence of a systemic-like event which causes pensioners who have no idea their managers invested in a derivatives currency arbitrage to lose money as a result of a Russian currency crisis,” said Rep. Richard Baker, R-Louisiana.

E. Gerald Corrigan, Goldman Sachs Managing Director, told the House Financial Service Committee that the risks facing investors are lower, but the possible consequences are greater.

Hedge Fund Regulation
The House Committee on Financial Services is holding its first in a series of hearings on hedge fund oversight, with Melissa Lee, CNBC Business News

“While the probabilities of shocks are lower, the potential damage that can result from such shocks is greater due to the increase speed, complexity and tighter linkages that characterize the global financial system,” he said.

One proposal would increase the required net worth of hedge fund investors to $2.5 million from $1 million. Public reaction has been strong and strikes a common theme: Who is the government to tell me what I can and can’t invest in?

Opponents of additonal regulation say new rules would prevent some individual investors from taking advantage of a hedge fund’s strategy in bull and bear markets.