Podcast Part 1: Interview with Kelli Moll of Schulte Roth & Zabel on Hedge Fund Regulation
When I first wrote about the proposed U.S. and EU legislation to register and regulate hedge fund managers, I knew it was a growing concern and it has since become a hot topic among hedge fund managers. To address this Intralinks has engaged a true expert on the topic, a partner at Schulte Roth & Zabel named Kelli Moll, to make sense of what's on the regulatory table
30 September 2009
When I first wrote about the proposed U.S. and EU legislation to register and regulate hedge fund managers, I knew it was a growing concern and it has since become a hot topic among hedge fund managers. To address this Intralinks has engaged a true expert on the topic, a partner at Schulte Roth & Zabel named Kelli Moll, to make sense of what's on the regulatory table. In our recent interview Kelli discusses proposed U.S. and EU legislation to register and regulate hedge fund managers.
Kelli's analysis, like most good analysis, answers these basic questions and brings new ones to the surface.
More Thorough Exams
Bernie Madoff (you may have heard of him) was a registered investment advisor. According to a report by the Office of the Inspector General (OIG) of the SEC, one reason the Madoff fraud went undetected was that examiners simply "compared documents and information that Madoff had provided to the examination staff (which he fabricated) with documents that Madoff had sent his investors (which he also fabricated)."
Question to ponder: Will examiners be reviewing a wider universe of hedge fund documents? Will fund managers have to prove that their documents haven't been altered and produce an audit trail to confirm the documents shown to examiners are the same ones sent to investors?
Reaching an Agreement in the EU
The EU's Directive on Alternative Fund Managers, which Kelli characterized as "a broad sweeping regulatory regime change" imposes unpopular and unprecedented controls (i.e. instituting capital requirements) on fund managers. The carrot in the Directive for EU fund managers is the creation of a single EU alternative fund market, and along with it better access to investors across the EU (but only for EU managers).The Financial Services Authority (FSA) has called this a protectionist tactic that will make it harder for fund managers in the U.S. and Asia Pacific region to operate in the EU and will ultimately drive business from the region.
Question to ponder: Will the goal of creating a single EU alternative fund market be dropped from the Directive? If it is dropped, what can the EU offer fund managers and their home country regulators to gain approval of the Directive?
Help for the Little Guy
There are thousands of U.S. hedge fund managers with AUMs between $25M and $50M who argue that they are too small to represent a systemic risk to the financial system, and that the proposed regulations would place a financial burden on them that they can't bear. The EU Directive seems to acknowledge this by setting the threshold for registration at €250 AUM.
Question to ponder: Will the US raise the threshold for registration from $25M to $100M AUM?
These questions will be debated by fund managers, regulators, and lobbyists as they work through the sausage-making process of legislation. In our next podcast on hedge fund manager regulation, Kelli pivots from discussing information sharing with regulators to information sharing with investors.