[Marxism] Hedge funds - reply to Sabri

Jurriaan Bendien andromeda246 at hetnet.nl
Wed Jul 21 05:01:32 MDT 2004


Sabri wrote:

What is more important is that if it goes like this, sooner or later hedge
funds will get regulated and, hence, they will
be subjected to disclosure requirements. As a result, their strategies will
no longer be private information, another important reason why hedge funds
are hedge funds.

Reply:

In fact, SEC chair William Donaldson, who has promoted greater scrutiny of
hedge funds, has suggested that the only way government will truly know
about the industry, is if all fund managers are forced to register
officially. Donaldson is vigorously opposed here by critics which include
Alan Greenspan, Michael Oxley (an Ohio Republican who is the House Financial
Services Committee Chairman), and the Managed Funds Association, a
Washington-based trade group for about 760 hedge funds. Cerberus Capital of
New York, which manages about $9 billion for clients, has hired the Patton
Boggs law firm to make a case against the SEC. The argument there must be
that, to make profits for clients, requires protection of privacy to provide
freedom to exercise personal judgement. There are some interesting parellels
here with the "intellectual property rights" debate.
The SEC voted on 14 July 2004 to publish for comment a proposed new Rule
203(b)(3)-2 and related amendments that would require hedge fund advisers to
register with the Commission, under the Investment Advisers Act of 1940. It
looks like hedge funds will in future be legally treated more like ordinary
investment companies. About 40 to 50 percent of all hedge fund advisers are
currently said to be registered with the SEC. Compulsory registration would
add an estimated 1,000 new hedge fund managers to the SEC's inspection
workload. Registration under the new rule would enable the SEC to:

- collect and provide to the public data about hedge funds and hedge fund
advisers, including the number of hedge funds operating in the USA, the
amount of assets, and the identity of their advisers

- be in a better position to detect questionable and fraudulent practices.

- force all hedge fund advisers to adopt basic compliance controls to
prevent violation of federal securities laws.

- Improve disclosure by the fund managers to prospective and current hedge
fund investors.

However, it's not clear to me that such regulation would prevent other legal
or semi-legal constructions to avoid inspections, or prevent hedge funds
from operating offshore in a less regulated environment. Experience shows
that, in capitalism, not only can you not force private investors to invest
where they don't want to, you can also not easily prevent them from
investing where they do want to invest. Sooner or later, legislation changes
to accommodate the real mode of accumulation.

Interestingly, a poll carried out by Chicago-based consultants Spectrem
Group of 250 individuals with a net worth of more than $500,000 in April
2004 found that the wealthy in reality have a low understanding of
alternative instruments like hedge funds, private equity and venture
capital. Respondents complained of being overwhelmed with information, and
said
they did not have the time to understand their investments. Almost 70 per
cent said there is too much investment information to understand, and it is
difficult to make sense of it. More than half admitted they are not taking
the time they should to manage their financial affairs. Only one-third said
they felt comfortable making investment decisions without the use of
advisers. However, the very rich (more than $5 million in assets) have far
greater knowledge of investment products like hedge funds and venture
capital than the wealthy class generally. That makes sense, because the
bigger players are doing most of the investing in hedge funds. For Spectrem
surveys of investor behaviour, see
http://www.spectrem.com/news_releases.shtml

Wasn't information overload supposed to be a unique problem of socialist
planned economy ?

Jurriaan














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