MFA backs hedge fund registration

The Managed Funds Association has backed proposals requiring US hedge fund managers to register with the Securities and Exchange Commission (SEC) under the Investment Advisors Act of 1940.

In testimony before a congressional committee, MFA president and CEO Richard Baker said mandatory registration could help restore investor confidence in the industry.

His comments were echoed by W Todd Groome, chairman of the Alternative Investment Management Association, which also backs SEC registration.

Policymakers in Washington have been pushing for greater oversight of the hedge fund industry since revelations about the Bernard Madoff fraud first came to light, even though this was not a hedge fund. The SEC has welcomed moves to re-introduce the registration rule which was overturned by the courts in 2006.

Treasury Secretary Tim Geithner has also called for hedge funds to be supervised by a systemic risk regulator charged with monitoring and preventing potential financial crises.

Baker said the regulatory framework backed by MFA and AIMA goes beyond that recently called for by Geithner. "The administration's proposal called for only the largest fund advisers to be registered for the purpose of assessing their systemic relevance. The registration regime we are supporting is more comprehensive and will subject the vast majority of investment advisers, including the largest and those considered most systemically relevant, to the SEC's registration requirements," he said.

Mandatory registration remains a divisive issue among US hedge funds managers. The original rule introduced by the SEC was opposed by the industry and was successfully challenged in the courts by Phillip Goldstein, who runs the activist hedge fund Bulldog Investors.

While offering support for registration, Baker said the move could backfire on the SEC if it is not granted greater resources. The SEC has been criticised for failing to uncover the Bernard Madoff fraud even though he was registered with the agency.

"A registration framework that overwhelms the resources, technology and capabilities of regulators will not achieve the intended objective and will greatly impair the ability of the regulator to fulfil their existing responsibilities, as well as their new responsibilities," Baker said.