February 04, 2005

Crapo Disappointed In SEC Vote

Hedge fund issue remained divisive in final SEC vote

Washington, DC â?? Idaho Senator Mike Crapo, a member of the Senate Banking Committee, expressed disappointment today after a divided Securities and Exchange Commission (SEC) voted to require mandatory registration of hedge fund advisers with the SEC. The 3-2 vote, taken this afternoon, means that, starting in February 2006, hedge fund advisers must register under the Investment Advisers Act of 1940. The change applies to hedge fund advisers managing $30 million or more in assets. There had previously been no requirement that hedge fund advisers register with the Commission, as such advisers cater to ultra-sophisticated investors and a compelling need for such registration has never been demonstrated. â??This contentious and controversial rule is a significant departure from the current regulatory framework, raises serious policy and practical concerns, and is unlikely to accomplish the Commissionâ??s stated goals,â?? Crapo said. â??A number of leading experts on capital market operations have questioned whether adviser registration is the most effective means to address concerns raised by the SEC, including Chairman Greenspan of the Federal Reserve, who has argued against the proposal. I share those concerns and find this lack of agreement within the SEC very troubling, especially in light of the absence of a clear factual record supporting regulation. The SEC should have found a more consensus-based alternative to fraud concerns rather than forcing such divisive requirements with so many experts unconvinced of the benefits. Crapo concluded, â??It may prove appropriate to have the Senate Banking Committee to examine these questions, to perhaps find a better way to address the SEC's goals without burdening the growing hedge fund market with onerous regulatory requirements. Government regulation should have a clear purpose and should be carefully evaluated in order to avoid unintended consequences.â?? Today there are approximately 8,000 hedge funds that manage close to $800 billion in assets throughout the country. # # #