Is your friendly neighborhood hedge fund prepared for March 30?
That’s the deadline to register with the Securities and Exchange Commission. This change in regulationâ€”brought forth by the Dodd-Frank legislationâ€”requires large hedge funds to provide the SEC with details about their risk management, trading, and disciplinary records. According to CNBC, this could mean that the $15 billion Moore Capital Management will transform itself into a smaller type of fund that would focus on its founder’s investments, instead of those from outside investors.
This is not the positive news hedge fund managers were hoping to get in 2012. But it’s not unexpected. They’ve been preparing for the Dodd-Frank invasion for some time, which is why Moore Capital Management and other hedge funds are considering a transformation. Many are expected to disappear entirely, while others could face harsh penalties for violating rules that were (up until now) completely ignored.
Interestingly, the SEC did allow for a few exemptions under the Dodd-Frank Act:
- Advisers solely to venture capital funds.
- Advisers solely to private funds with less than $150 million in assets under management in the U.S.
- Certain foreign advisers without a place of business in the U.S.
But considering the fact that most major hedge funds do not meet the criteria above, it’s not surprising to hear that many are fearful of the future.
“It’s trying,” Brad Alford, a money manager who invests in Moore Capital Management (among other hedge funds), told CNBC, expressing his disappointment. “The years that we needed hedge funds to perform the mostâ€”in 2008 and 2011â€”they failed us miserably.”
With hedge funds failing to live up to expectations, and with the impending regulation threatening to forever change the industry, guys like Alford might be tempted to leave the investment community for a more substantial job on Wall Street.
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