Self-Regulate Or Else, Warns Ex-SEC Chair

May 17 2007 | 10:43am ET

It’s hardly breaking new ground, but former Securities and Exchange Commission Chairman Harvey Pitt’s call for U.S. hedge funds to regulate themselves—or else—could hardly be timelier.

“Regulation of hedge funds is on the horizon,” he warned a conference of the New York State Society of CPAs. “The only question is whether that regulation will come from the government or from hedge funds themselves.”

Pitt’s dire words come the same week that the senior Republican on the Senate Finance Committee proposed giving the SEC the power to force hedge funds to register, and in advance of a meeting of G8 finance ministers expected to be dominated Germany’s proposals for international hedge fund oversight.

While he praised Britain’s Financial Services Authority for giving retail investors greater access to hedge funds, he cautioned that a hunger for retail investors in the U.S. is likely to be a disaster for hedge funds.

“I believe that hedge funds that try to raise so-called ‘permanent capital’ from ordinary investors are embarking upon a course of action that is sure to lead to significant problems,” he said.

The only solution, Pitt suggested, is a self-regulatory organization.

“If the hedge fund industry is able to realize that the benefits of self-regulation outweigh their costs, for a few dollars more the industry can protect itself from unwelcome government intervention,” he said.

But, “absent any concrete suggestions from hedge funds,” Pitt warned, “legislators and regulators will be happy to propose their own solutions, no matter how impractical.”


In Depth

Malik: The Science of Deal Sourcing 201

Aug 27 2015 | 5:35pm ET

Deal sourcing is understandably a hot topic among private equity firms because it...

Lifestyle

Rolling Art Advisors Marketing Collectible Car Fund As Uncorrelated Alternative

Aug 27 2015 | 6:47pm ET

A new fund is trying to provide investors with greater access to an emerging asset...

Guest Contributor

Agecroft Partners: Hedge Fund Industry Assets to increase $250B by Summer 2016

Aug 11 2015 | 11:29am ET

Assets will continue to flow into the hedge fund industry despite long-standing...

 

Editor's Note