The US Securities and Exchange Commission (SEC) has added a further set of data disclosure requirements to those it is proposing for the hedge funds market as part of the Dodd-Frank reforms. Under the proposed reforms, more organisational and operational information will be needed for SEC registration purposes from investment advisers and the private funds they manage in order to better judge counterparty risk in the traditionally opaque hedge funds sector.
The basic organisational and operational information includes the amount of assets held by the fund, the types of investors in the fund, and the adviser’s services to the fund. The rules also provide for the identification of five categories of “gatekeepers” that perform critical roles for advisers and the private funds they manage: auditors, prime brokers, custodians, administrators and marketers.
The rule changes, which are part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, permit the SEC to require hedge funds to register with the regulatory body by closing the current loophole under the Investment Company Act of 1940. SEC chairman Mary Schapiro explains: “The enhanced information envisioned by these proposed rules would better enable both regulators and the investing public to assess the risk profile of an investment adviser and its private funds.”
These new classifications and reference data items must therefore be maintained by investment advisers and reported to the regulator in the formats requested, should the rule changes be approved. The rules also include more details about who is exempt from providing these reports, such as venture capital funds.
The SEC is seeking public comment on the proposed rules for a period of 45 days following their publication in the Federal Register. See the SEC website here for more details.
Europe is also seeking to impose new transparency requirements on the hedge fund sector, although the requirements on this side of the pond are not as detailed.
As for identification of individual hedge funds themselves, Cusip Global Services (CGS) has said that it is planning the launch of its Cusip for hedge funds service for the fourth quarter of this year. CGS signed up to work in partnership with hedge fund and fund of hedge fund information provider HedgeFund.net to produce a Cusip identification system for hedge funds and funds of hedge funds on a global basis in June 2009 and has since added around 4,000 hedge fund identifiers to its database.