Wednesday, February 28, 2007

Treasury Official Defends New Hedge Fund Guidelines

Days after a presidential commission recommended a hands-off approach to regulating hedge funds, the Treasury Department is defending its new guidelines against critics who say the new rules don’t go far enough, according to The Financial Times. Answering naysayers — who include several state attorneys general — Robert K. Steel, a deputy to Treasury Secretary Henry M. Paulson Jr., said that the President’s Working Group on Financial Markets would stand firm on its report’s recommendations.
“The President’s Working Group did not view this issue through an anti-regulatory lens,” the F.T. reported Mr. Steel as saying. “In fact, if the group believed that our regulators needed more authority to address these issues, Secretary Paulson would have led the charge in asking for it.”
The report represents the newest stance on hedge fund regulation since the 1998 meltdown of Long Term Capital Management. In it, the Bush administration and top domestic regulatory agencies said that the $1 trillion industry needed no extra policing from the government or other agencies. Hedge funds, their lenders and their investors were best equipped to keep the lightly regulated investment pools in line, the report said.
Mr. Steel acknowledged criticism that “a vocal few” had decried the new rules as ambiguous. But he said that regulations could prove only a one-time fix — and that the guidelines should not be understood as “an endorsement of the status quo.” The principles outlined in the report, he said, were specific and should be helpful markers for people to follow.
He kept some of the onus on investors: “If one does not see appropriate disclosure, one should not invest.”
It isn’t clear yet whether Mr. Steel’s clarifications would pacify critics like Richard Blumenthal, Connecticut’s attorney general, who said that the rules need “a lot more teeth and a lot more specificity.” His state’s legislature is considering two bills that would bolster transparency in the famously secretive industry. Such a move would have extra impact because many hedge funds reside in the city of Greenwich.
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