11 Aug 2009, By Omar El Gamry, Operational Risk & Regulation
WASHINGTON, DC - Hedge fund managers and private equity investors are breathing a sigh of relief after US lawmakers have indicated tough new financial rules will not apply to them.
The US House of Representatives is set to pass a bill that severely constrains activity in banking and mortgage lending, while letting hedge funds and private equity firms carry on as normal, following last year's collapse of credit and financial markets.
Barney Frank, chairman of the House Financial Services Committee, said: "How can you regulate a hedge fund like a mortgage? It doesn't make any sense. It will need to be a form appropriate to them."
The proposals are a victory for the main industry organisations representing hedge funds and private equity firms, who are still battling proposed strict new rules in Europe and spent $3.6 million on lobbying Committee members during the first six months of this year.
"I spent a lot of days hearing, 'we had nothing to do with the crash'," said Republican committee member Jim Hines, a former investment banker. "For the most part, they're right. Part of what we need to do is not hurt those who don't add more risk to the system."
Fellow Republicans on the panel, such as Spencer Bachus, agreed: "A hedge fund that fails just means they made the wrong bet. Hedge funds are not overleveraged."
Other panel members said they expect the final legislation to include requirements for registration and reporting to the US Securities and Exchange Commission. That would track proposals in the Senate and in President Barack Obama's proposed rules for private equity and hedge funds.
Obama's plan would require hedge funds and private equity funds to register with the SEC and disclose information about their holdings. If firms are judged to pose a danger to the financial system, they could come under the purview of a proposed risk-monitoring regulator.
Richard Baker, president of the Washington-based Managed Funds Association, said to Bloomberg: "While not the root cause of these concerns, as financial market participants, we have a shared interest in working to promote financial market and economic stability, and the restoration of investor confidence."