Senate rejects proposed crackdown on hedge fund registration

The US senate has rejected a proposed amendment that would have required most hedge funds to register with the Securities and Exchange Commission (SEC).

Charles Grassley, the senior Republican member of the Senate's finance committee, proposed compelling any adviser with more than $50 million under management - or responsible for more than 15 investors - to register with the SEC.

At present, advisers with more than 15 clients have to register, while pooled investment vehicles, such as hedge funds, are counted as a single client, regardless of how many ultimate investors they may represent.

There is also no asset limit: under present rules, an adviser could manage any amount without having to register, as long as the assets come from fewer than 15 investors.

In June last year, the US Court of Appeals overturned an attempt by the SEC to enforce registration. Since then, many hedge funds have deregistered.

At a meeting of the President’s working group on financial markets last month, US regulators agreed to back away from further hedge fund regulation, and concluded that counterparties should monitor and control their risks in dealing with hedge funds. (See: No need for more hedge fund regulation, US group says)

Grassley attached the amendment to a Homeland Security bill being debated by the Senate, arguing that there are terrorist links to hedge funds. “There is a Homeland Security element to this fix, because it can sometimes be important to know who is managing large sums of money for wealthy foreign investors,” he stated.

Last October, Grassley warned treasury secretary Henry Paulson that hedge funds were endangering US pension schemes.