Wall Street money managers told a House committee on Tuesday that hedge funds should disclose more to their bankers and improve their risk management but not be subject to new regulations.
The House Financial Services Committee is conducting hearings on whether hedge funds should be more closely regulated to protect individual investors. Among the proposals: having hedge funds register with the Securities and Exchange Commission and raising the minimum net worth of individuals allowed to invest in hedge funds to $2.5 million from $1 million currently.
A recent report by the President's Working Group on Financial Markets, which included representatives of the SEC, Treasury, Commodities Futures Trading Commission and the Federal Reserve, said current regulations on hedge funds were sufficient.
But members of the committee, chaired by Rep. Barney Frank, D-Mass., expressed concern that average investors could be hurt without further oversight.
“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.
But E. Gerald Corrigan, Goldman Sachs Managing Director, told the committee that rather than new rules, hedge funds should should improve their risk management and disclosure to lenders.
“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.
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.