Opponents of greater hedge fund regulation complained Tuesday that the SEC had rushed the rule to passage, while failing to identify a specific problem that it was supposed to solve. The SEC staff began its review of hedge funds more than two years ago and proposed the new rule in July.
"I'm disappointed in the approach we chose and know that we can and must do better," said Republican Commissioner Cynthia A. Glassman, who took the unusual step of releasing a statement of dissent. "I believe it is the wrong solution to an undefined problem."
Her GOP colleague, Paul S. Atkins, contended that the SEC would be wiser to target its resources on such areas as mutual funds, which are marketed to the general public.
"I am befuddled as to why we are charging ahead in the face of such a groundswell of principled opposition to this action," Atkins said.
Supporters of the rule pointed out that the SEC had brought 51 cases involving hedge fund fraud over the last five years, and that hedge funds played a prominent role in abusive trading among mutual funds, including prohibited late-trading strategies.
Hedge funds also have burgeoned in size, increasing fivefold in the last decade, and are predicted to surpass $1 trillion in assets as early as next year.
"Given the substantial and growing risks for millions of investors
Opponents weren't convinced. Attorney Daniel Schloendorn of Willkie Farr & Gallagher in New York, who represents hedge funds, said in an interview that the SEC had underestimated the cost of complying -- SEC staff put it as low as $20,000 per hedge fund manager -- while exaggerating the benefits of new regulation.
The Managed Funds Assn., which represents 800 hedge funds, expressed disappointment in the SEC vote but vowed to work with regulators to comply with the new requirements.
"It remains our opinion, and one that is obviously widely held, that the case for the SEC's proposal was not made," association President John G. Gaine said.
