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July 21, 2005
SEC observes quantum rise in leverage hedge funds
The Securities and Exchange Commission (SEC) has been observing that there has been a quantum rise in leverage hedge funds, but has also made its intent clear by stating that it did not wish to regulate the industry. The industry lately has been thriving on a lot of borrowed money. Leverage technique, as it is commonly called, is used to enhance bets in the markets. Some funds borrow up to two or three times its capital, in order to maximize their return. This can sometimes go horribly wrong and lead to disaster like that witnessed by collapse of Long Term Capital Management in 1998 after Russia’s debt default. Roel C. Campos, SEC commissioner, told a Managed Funds Association symposium organized recently, that although the industry was under scrutiny, they were not contemplating regulating it. Commenting on the situation of increased borrowed funds, managers at Reuters Hedge Fund Summit held in London last month said that they saw nothing to confirm that funds were borrowing heavily to boost returns. None the less, some basic rules are in place – for example in October last year SEC notified the hedge funds that any fund manager with 15 or more U.S. investors and managing assets of $30 million or above has to register with the agency from 1st Feb. 2006. Money.cnn.com reports:
“In October last year the SEC ruled that any fund manager with 15 or more U.S. investors and more than $30 million in assets must register with the agency starting on Feb. 1, 2006, to broaden its supervision of the sector. “
Read More: SEC warns of hedge fund risks, but doesn't want to regulate .
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