Wednesday, December 13, 2006

"SEC Seen Tightening Hedge-fund Rules" - Marketwatch

Opinion follows.

Thank goodness. Yes, the Unknown Advisor personally favors some additional anti-fraud and access limitation provisions for hedge funds. Too much is at stake, for too many people, and frankly, for the financial markets as a whole. I for one am pretty tired of seeing monthly hedge fund blowups and scandals. Practically every month we see another one. Amaranth. Which one is next? Just wait a week or two.

And frankly, I cannot see a valid way to consider hedge funds as an asset class, which is the supposed rationale for pension plans, like those of the states of California and Florida, et al, putting money in them. An asset class is supposed to possess (as a class, now,) similar characteristics, quantifiable risks and expected returns. Where you have a grab-bag of fourteen or fifteen pretty complex (frequently substantially derivatives-based) strategies, no audited performance numbers, and a definition of "qualified investor" which effectively just requires deep client pockets but not real client comprehension of the risks, well, all I see is something for a prudent investor to avoid, not an asset class. You can do just fine, over time, with more traditional types of investments.

SEC seen tightening hedge-fund rules - MarketWatch

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