Hedge Funds Under Scrutiny From House

Friday, 06 July 2007 22:26 Two separate House panels are set to hold hearings next week focused on hedge funds. The House Financial Services Committee and a subcommittee of the House Oversight and Government Reform Committee, are both scheduled to hear testimony on July 11, 2007, from different regulators and analysts regarding a range of issues involving the hedge fund industry. Financial Services Committee Chairman Barney Frank (D-MA) said that the Committee’s hearing will be designed to learn how federal overseers “monitor systemic risk related to hedge funds and how that process might be improved.” This on the heels of Franks summoning all 5 SEC Commissioners to testify in front of the Committee last Tuesday. See SEC Commissioners Called to Questioning. Expected to testify on July 11 are Federal Reserve Board Governor Kevin Warsh, Treasury Under Secretary for Domestic Finance Robert Steel, SEC Market Regulation Director Erik Sirri and CFTC Chief Economist James Overdahl. Much attention is being paid on Capitol Hill recently to hedge funds and financial matters generally. The now Democrat controlled Congress has shown far more zeal in pursuing increased regulation of alternative investments than Congress has over the last several years, especially as populist political strategies are being revived by the coming elections in 2008. There is growing concern in light of hedge fund blow-ups at Bear Stearns Co. and Amaranth Advisors, LLC, that industry regulations are not sufficient to protect investors and the market at large from the risks posed by alternative investment strategies. Among other things, the House panels will be asking about how hedge funds value their assets, an issue raised by hedge fund investments in collateralized debt obligations and other hard to value positions. Rep. Dennis Kucinich (D-OH), who chairs the subcommittee scheduled to hear testimony next week, told CNBC last month that when you have this huge amount of capital that is unregulated, there is a potential that investors could end up losing mightily because no one asks. He said that we’re going to be asking the questions about should hedge funds be more tightly regulated and what are the issues involved if they are? The hedge fund industry is growing rapidly and is currently estimated at greater than $1.5 trillion in assets.