House Bill Will Feature Light-Touch Regulation For Hedge Funds, Private Equity

Aug 10 2009 | 4:35am ET

The American alternative investments industry seems to have dodged a major regulatory bullet.

The U.S. House of Representatives is likely to pass a bill severely tightening the reins on banks and mortgage lenders while letting hedge funds and private equity firms off relatively easy, Bloomberg News reports. Members of the House Financial Services Committee from both sides of the aisle indicate that alternative investment firms will have to register with regulators and provide them with more information, but will not be subject to any strict new limits on their activities.

The word from the south side of Capitol Hill signals a general agreement between the House, Senate and White House about how hedge funds and private equity firms should be handled.

“How can you regulate a hedge fund like a mortgage?” Rep. Barney Frank (D-Mass.), the head of the panel, asked. “It doesn’t make any sense.”

Republicans on the panel agreed.

“I don’t think they should be regulated the same way” as banks, Rep. Michael Castle (R-Del.) told Bloomberg.

“A hedge fund that fails just means they made the wrong bet,” Rep. Spencer Bachus (R-Ala.), the lead Republican on the committee, offered. “Hedge funds are not overleveraged.”

The news is likely to be a weight off the shoulders of the alternative investments industry, which is still battling proposed strict new rules in Europe and which spent $3.6 million lobbying Washington in favor of lighter-touch regulation in the first half. That’s a 20% increase over the amount spent lobbying during the first six months of last year.

“I spent a lot of days hearing, ‘We had nothing to do with the crash,’” Rep. Jim Himes (D-Conn.), a former Goldman Sachs executive who represents the hedge fund-heavy parts of southwestern Connecticut. “For the most part, they’re right.”


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