Securities regulations have many goals (prevention
of misdeeds, market stability, investor protection), however, for those who
can navigate the system, new hedge fund regulations will have the
effect of increasing transparency for hedge fund investors. While recent moves
appear to be primarily aimed at increasing the ability to the government to
collect information on hedge funds in order to prevent market risk, we see
hedge fund investors as additional beneficiaries of these government actions.
website is a wealth of information for hedge fund investors. By navigating
through the EDGAR filings section, investors can find information not only on
the fund level, but on the adviser level as well. Some of these filings are not
new (13f), but some have been enhanced (Form D). Information provided can
relate both to adviser positions, as well as organization.
Reviewing the Investment Adviser Public Disclosure area
on the SEC website, investors can review an adviser's new Form ADV, both parts
I and 2A. The Form 2A and additional
Part I questions are new this year. Contained in these forms is information
related to fees, organization, disciplinary history, conflicts of
interest, investment strategy, custody and brokerage practices, among
Perhaps the brass ring of information however is the new
Form PF, which was just released in final form yesterday. This Form provides
the SEC, the CFTC and other interested government agencies with a vast array of
portfolio information, focusing on risk. The data collected is meant to stay
confidential within the government. However, we believe fund advisers will have
to grapple with whether to release this information to investors who request
Other sources of transparency for hedge fund investors
may stem from various new regulations that are still pending, such as: the
proposal that would require many hedge funds to register with the CFTC (in
addition to the SEC) and FINRA's proposal requiring broker-dealers that
distribute hedge funds to increase "use of proceeds" disclosure to investors. Additionally,
even on the accounting side, we see a move by the GIPS oversight body to
better address issues around the presentation of hedge fund performance results.
Investors need to stay abreast of these regulatory
developments; and hedge fund advisers need to continue towards increased
compliance and transparency, which has surely been the theme of this past year
in the industry.
Read more articles about the hedge fund industry
and related legal issues at Hedge Rows, a blog by Judith Gross
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