CFTC rules to add to Dodd-Frank cost burden-funds

By Suzanne Cosgrove

PALM BEACH, Fla, Jan. 31 | Tue Feb 1, 2011 1:59am GMT

PALM BEACH, Fla, Jan. 31 (Reuters) – Hedge funds are concerned that compliance with reporting regulations proposed by the U.S. futures regulator last week will require too much time and money, creating an unnecessary cost burden for the industry.

The Commodity Futures Trading Commission last week proposed rules that would require more reporting from funds, commodity pools and commodity trading advisors — rules that the Managed Funds Association said would require too much paperwork.

Regulators’ ongoing effort to implement the Dodd-Frank bank reform law was a top agenda item for many in the hedge fund industry at an annual Managed Funds Association conference this week.

“We don’t mind being regulated,” said one MFA member. He said he understood the need for regulation, but dual regulation for those firms who would have to report to both the CFTC and the Securities and Exchange Commission would create “unnecessary redundancies.”


Last week, the CFTC and Securities and Exchange Commission proposed rules that would require funds, commodity pools and commodity trading advisors to file reports to regulators on their operations.

The CFTC said it wanted to harmonize its existing reports, rules and exemptions for commodity pools and trading advisors with the new framework.

Hedge funds’ investment strategies vary, but most include a variety of investments, including managed futures, as part of their overall portfolios.

The CFTC plan unveiled last week would include a description of certain information about private funds, such as the amount of assets under management, use of leverage, counterparty credit risk exposure, and trading and investment positions for each private fund advised by the adviser.

Dual registrants with less than $1 billion in assets under management would need to file annually, while those with assets exceeding that threshold would be required to file quarterly.

The Dodd-Frank rules come as investors in hedge funds slowly recover from the financial crisis of 2008.

A recent study shows some 78 percent of participants of hedge funds are institutional investors, such as pension funds and endowments, noted Richard Baker, MFA’s president and chief executive officer.

The pace of investment inflows has slowed since the financial crisis of 2008, but generally has stabilized, fund industry members said.

“What has changed, is institutions have less money,” said Ash Williams, director and chief investment officer of the Board of Administration, which has about $140 billion under management. “The recovery has helped, but liquidity is still constrained for many,” he said in a speech to members.

“What hasn’t changed is that investors still need real returns… some people and processes are smarter than others, and diversifying risks still make sense,” Williams added. (Reporting by Suzanne Cosgrove; Editing by Michael Urquhart)


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