Last week the Subcommittee on Securities, Insurance, and Investment of the United States Senate Committee on Banking, Housing and Urban Affairs held a hearing on regulating private investment funds. [You can see an archive of the hearing.] The video shows lots of empty Senator chairs at the hearing.
- Majority Statement from Senator Jack Reed
- Minority Statement from Senator Jim Bunning
- Statement from Mr. Andrew J. Donohue
Director of the Division of Investment Management
U.S. Securities and Exchange Commission - Statement from Mr. Dinakar Singh
Founder and Chief Executive Officer
TPG Axon Capital - Statement from Mr. James Chanos
Chairman
Coalition of Private Investment Companies - Statement from Mr. Trevor R. Loy
General Partner
Flywheel Ventures - Statement from Mr. Mark B. Tresnowski
Managing Director and General Counsel
Madison Dearborn Partners, LLC - Statement from Mr. Richard Bookstaber
Financial Author: A Demon of Our Own Design – Markets, Hedge Funds, and the Perils of Financial Innovation - Statement from Mr. Joseph Dear
Chief Investment Officer
California Public Employees’ Retirement System
Senator Reed pushed his Private Fund Transparency Act. Senator Bunning sees some need for more disclosure, but is skeptical that regulation would do much.
Mr. Donohue’s statement gives a great summary of the history of the regulatory approaches to private investment funds and a summary of the current exemption available to private investment funds.
The questions from the Senators also provided some interesting insight of the legislators and SEC. Mr. Donahue’s pitch for regulation was that the Investment Advisers Act was put in place to regulate people who manage other people’s money. Private fund advisers indirectly manage other people’s money. He does not like the idea of putting private funds under the Investment Company Act. Senator Reed pointed out that bringing private funds under the SEC registration umbrella would require additional resources and technology.
Senator Bunning cut into Mr. Donohue, wanting to know who in the SEC is “smart enough.” The Senator was highly critical of the SEC.
Senator Bayh focused on the international issues and the EU’s Directive on Alternative Investment Fund Managers. He also wondered if over-regulation could lead to forum shopping by fund managers.
Mr. Singh pushed for “smart regulatory framework.” He pointed out the MFA’s Sound Practices for Hedge Fund Managers (.pdf).
Mr. Chanos pitched the idea of having a special Private Investment Company law specifically tailored for SEC regulation of private investment funds. (In my view, the best approach.)
Mr. Loy gave the view of venture capital funds and how they operate differently than hedge funds. He pointed out that venture capital funds do not provide systemic risk. Senator Bunning showed a lack of understanding of venture capital.
Mr. Tresnowski presented on behalf of The Private Equity Council and showed the differences between private equity and hedge funds. Senator Bunning also showed a lack of understanding of private equity.
Mr. Bookstabber focused on systemic risk.
Mr. Dear gave the viewpoint of an investor in private funds. He also pointed out the superior returns they have experienced with private investment funds.