FINRA Burned By Hedge Fund, P.E. Investments

Sep 28 2009 | 11:32am ET

A key U.S. self-regulatory agency hasn’t done a very good job of regulating its own risky investments.

The Financial Industry Regulatory Authority has sharply curtailed its investments in hedge funds, private equity funds and other volatile investments after taking a bath on them last year. The regulator, formed two years ago by the merger of the National Association of Securities Dealers and NYSE Regulation, saw its $1.2 billion investment fund fall 27% last year. In response, FINRA sharply increased its fixed-income allocation to 50%, at the expense of some of the 10 hedge funds and 20 private equity firms that made up about half of FINRA’s money managers last year.

Among the alternative investment firms that FINRA had money were Farallon Capital Management, Alinda Capital Partners and Siguler Guff & Co., The Wall Street Journal reports.

FINRA said the losses “have in no way hindered our ability to fulfill our regulatory responsibilities.” But they’ve drawn a lawsuit from one member firm.

Inglewood, Calif.-based Amerivet Securities has sued the regulator, alleging that it was “reckless in pursuing high-risk strategies inappropriate to preservation of capital.”


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