SEC Commissioner Floats Hedge Fund Regulation Ideas
In a recent speech, SEC Commissioner Luis Aguilar argued that hedge fund advisers with over $25 Million in assets should register with the SEC and that the funds themselves should be subject to restrictions contained in the Investment Company Act, depending on their “potential to affect the market.” Mr. Aguilar also argued that the SEC should have inspection authority over all hedge fund advisers. Mr. Aguilar claims that hedge funds need additional regulation because of counterparty risk, high rates of insider trading, significant participation in the derivatives and securitized products markets, and the need for additional investor protection.
OUR TAKE: Mr. Aguilar appears to be floating the SEC’s first outline of a hedge fund regulatory regime focused on fund advisers with more than $25 Million in assets. The tiered “40-Act Lite” regulation for the funds themselves would significantly change the industry. Also, Mr. Aguilar did not suggest any exemption for private equity funds.