Hedge funds play a critical role in capital formation, and are increasingly influential participants in the capital markets. The hedge fund industry is transitioning from a secretive industry to a widely-recognized and influential group of investment managers.
Mary Jo White’s speech at the Managed Funds Association Conference on October 18, 2013 underscores the transformation of the hedge fund industry and highlights the important changes in the regulatory landscape pertaining to the hedge fund industry. I had previously commented on this here.
The changes introduced by the Dodd-Frank Act and the JOBS Act may be described as tectonic shifts for the hedge fund industry. The Dodd-Frank Act required most advisers to hedge funds and other private funds to register with the SEC and directed the SEC to collect information, on a confidential basis, from private fund advisers regarding the risk-profiles of their funds. See further on the Effects of the Dodd-Frank Act on the Hedge Fund Industry here.
Similarly, the JOBS Act, directed the SEC to lift the decades-old ban on general solicitation that applied when companies or funds make private securities offerings under Rule 506 of Regulation D. As a result, as of September 23, 2013, hedge fund managers are free to communicate with investors and the public. They can advertise, talk to reporters, and speak at conferences. See further on Lifting the Ban on General Solicitation here.
Mary Jo emphasizes in her speech: “Our knowledge of the markets and understanding of your businesses is also enhanced when [private fund managers] provide us with non-public data on [private] funds’ risk profiles, which is required by new Form PF mandated by the Dodd-Frank Act. Form PF provides information on the types of assets [private fund managers] are holding to help to inform government regulators tasked with monitoring systemic risk. Using this information, regulators can then assess trends over time and identify risks as they are emerging, rather than reacting to them after they unfold [. . . ] This era of hedge fund transparency is also new for [the SEC]. We need to continuously ensure that we – as regulators – are asking for the right information, in the most appropriate way.”
The effects of the new era of hedge fund transparency are still largely unclear and will continue to motivate and dominate my work. There is some anecdotal evidence that the SEC may be struggling to ask “for the right information, in the most appropriate way.” Several previous articles and three works in progress, including a forthcoming survey study on Form PF, evaluate if the SEC’s evaluation of systemic risk data in Form PF can facilitate regulators’ assessment of: “trends over time and identify risks as they are emerging.” Another work in progress evaluates the effects of new Rule 506 (c) on the hedge fund industry.
Related articles
- Hedge Fund Performance after the Dodd-Frank Act – Presentation at the Midwestern Law & Economics Association (wulfkaal.com)
- Hedge Fund Performance after the Dodd-Frank Act (themarketmaker.org)
- Hedge Fund Regulation Symposium (wulfkaal.com)
- Symposium on Hedge Fund Regulation – University of Minnesota – Tuesday November 5, 3:15 Pm-5:15 Pm (reception to Follow) (themarketmaker.org)
- New Findings on Impact of Hedge Fund Compliance Cost (themarketmaker.org)
- Current SEC Priorities Regarding Hedge Fund Managers (blogs.law.harvard.edu)
Wulf Kaal 