Under a proposed federal bill, a large number of hedge funds in Fairfield County would be forced to register with the Securities and Exchange Commission and disclose details of their business.
Fairfield County is home to one of the five largest clusters of hedge funds in the world, including Westport-based Bridgewater Associates Inc., the world”™s largest according to Alpha magazine. Hedge funds use sophisticated trading techniques in an attempt to post better returns than traditional investment vehicles; to date, firms have been allowed to maintain a veil on most details of their businesses on the argument that they constitute valuable trade secrets that furnish them a competitive edge.
In mid-July, the U.S. Treasury sent Congress a proposal for overhauling the nation”™s financial system, including how to handle hedge funds. Among other points, the bill would require hedge funds with at least $30 million in assets under management to disclose:
Ӣ total assets under management;
Ӣ investment positions;
Ӣ leverage ratios of assets to debt;
Ӣ off-balance sheet arrangements;
Ӣ risk exposure to other entities; and
Ӣ trading strategies.
The Connecticut General Assembly considered a proposal this year to collect a limited amount of information from hedge funds doing business within the state”™s borders, but did not act.
Richard Baker, CEO of Managed Funds Association in Washington, D.C., testified this month that it supported the registration of investment advisers to all private pools of capital, with the exception of the smallest entities.
“Hedge funds, as sophisticated institutional investors, have important market functions in that they provide liquidity and price discovery to capital markets; capital to companies to allow them to grow or turn around their businesses; and sophisticated risk management to investors such as pension funds, to allow those pensions to meet their future obligations to plan beneficiaries,” Baker said. “Smart regulation helps to ensure stable and orderly markets, which are necessary for hedge funds to conduct their businesses.”
The federal hedge fund proposal follows a white paper published last month by the Treasury that proposed a broad set of regulatory goals for all types of financial entities, including one to create a single regulatory agency from several separate departments such as the Federal Deposit Insurance Corp. In a conference call with analysts this month, the CEO of Bridgeport-based People”™s United Financial Inc. said his company is still trying to absorb the proposed changes.
“It”™s very difficult, frankly, to react because we don”™t know exactly what”™s going to come of it, if anything,” said Philip Sherringham, CEO of People”™s United, the largest bank based in Fairfield County. “There”™s some elements of the package that we think are frankly problematic and there are other elements of it that we think are probably all right ”¦ We would tend to be very supportive of the FDIC concerns or restrictions on the participation of private equity capital in the buyout of some failed banks. We feel that those constraints that the FDIC is suggesting should be in place are very legitimate.”
