Hedge Funds Continue to ‘Hide the Ball’ from Investors


Hedge funds are winning the fight against transparency. While hedge funds with more than $1.5 billion in assets will be required to report certain information to the Securities and Exchange Commission under new rules, after intense lobbying, no hedge funds will be required to report “position information,” or details on individual investment holdings; they will not bear the penalty of perjury for misleading reports; the reports will not be public (only regulators will have access to them). All of this assumes the rule, which was approved by the SEC, is also approved by the Commodities Futures Trading Commission, as expected.

Hedge funds with more than $500 million or more in assets will be required to disclose the amount of leveraged they use and also how liquid or illiquid their investments are.

Hedge funds with $150 million to $500 million in assets need only report their general fund strategy, identify their trading and clearing firms, and their counterparties in derivatives contracts, which could stand to lose if the fund fails to meet its obligations.

Hedge funds with less than $150 million will not be required to file the new reports.

Hedge funds with more than $5 billion in assets must file reports by June 30, 2012. Smaller funds have until early 2013 to file.

The information will be due quarterly, within 60 days of the end of the quarter.

The new reporting requirements are supposed to enable regulators to monitor the systemic risks posed by hedge funds, which the Federal Reserve, Treasury Department, SEC did not have during the 2008 financial crisis. Unfortunately, these new requirements provide little meaningful information to investors.

Only about 230 U.S. hedge funds are subject to the strictest reporting requirements, but they comprise 80 percent of the assets under management among all hedge funds, according to SEC chairman Mary L. Schapiro.

The data collection “follows the lessons learned during the financial crisis ? lessons about the importance of monitoring and reducing the possibility that a sudden shock or failure of a financial institution will cascade through the entire financial system,” Ms. Schapiro was quoted as saying.

Earlier this year, regulators imposed requirements that hedge funds provide general information about the size of the fund, its largest investors, and its auditors, clearing firms, and marketers.

Despite the new reporting requirements, analysts will still be unable to analyze and report on specific parts of the industry or individual firms that pose potential risks to themselves, their counterparties or segments of the entire industry.

Page Perry is an Atlanta-based law firm with over 150 years collective experience representing investors. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. For further information, please contact us.