Hedge funds prefer an environment that keeps them out of the public eye. However, this has been difficult in the past months. There is uncertainty about their registration requirements in the US, earlier this month the European Commission (EC) released a report on their industry, and last week there was an open hearing in Brussels on its implications.
In 2005, the US's Securities and Exchange Commission (SEC) passed a ruling requiring US hedge funds to register with them. This ruling was then struck out by the US's own appeal court but not before many thousands of hedge funds and hedge fund advisors had registered. Despite the court decision, de-registration will not be easy and many pension funds and trusts will insist on registration as a condition of business. In an added complexity, the US Senate's powerful banking committee, who had previously said that registration was enough and that there was no need for further oversight, has come out in favour of further controls. Chuck Hagel, the senator speaking for the committee said: "We need to take a look at what is responsible and appropriate oversight with regard to hedge funds. This will require further banking committee hearings." European hedge funds are resisting the US registration requirements and may be discouraging US investments in order to avoid becoming liable for SEC registration.
Earlier this month, the EC published an independent report on hedge funds. It recommended a light touch to regulation and suggested that the EC lobby the SEC to allow such regulation to be sufficient to enable European hedge funds to escape further registration. However at the closing remarks to last week's open hearing, Commissioner McCreevy cautioned against any expectations of light regulation, should hedge funds continue to target the retail markets. He said "Let's be realistic: If part of the industry wishes to make hedge fund investing available to the mass market there will be close regulatory engagement. The hedge fund industry cannot expect to have red-carpet access to the mass market while the rest of the fund industry is subject to strict regulatory controls." So how will things pan out? Will there be a heavily regulated hedge fund market open to all, or will it keep to European institutional clients and escape further oversight?
| 
