Rush To HF Regulation Unlikely
Connecticut Attorney General Richard Blumenthal’s campaign for tighter hedge fund regulation in the state may have gotten a boost with the losses sustained by his state’s Amaranth Advisors, but observers say it is unlikely to be the impetus for new rules industrywide.
Connecticut Attorney General Richard Blumenthal’s campaign for tighter hedge fund regulation in the state may have gotten a boost with the losses sustained by his state’s Amaranth Advisors (trivia: the firm’s name refers to a flower in mythology that never withers), but observers say it is unlikely to be the impetus for new rules industrywide. For his part, Blumenthal is collecting evidence, implying that there may have been some hedgie hanky-panky that led to the losses. “Particularly problematic are alleged representations made to investors in recent weeks by the management of Amaranth that may be contrary to apparent facts,” Blumenthal said in a statement. “Such claims - if made - would contradict the spirt and the letter of current law,” and he says “offer additional powerful and compelling evidence about the need to reform disclosure and oversight requirements.” Not so fast. Some lawyers say investors would have to prove there was gross negligence to make a valid claim and recover successfully. But more important to the industry are the somewhat sanguine comments from people whose professional lives touch the hedge fund industry. Securities and Exchange Commission Chairman Christopher Cox said in a statement, “It may be a bit too early to infer all the potential lessons to be learned,” adding that the current events are just another reminder that investing in hedge funds is risky. No mention of new regulations. And analyst Dick Bove of Punk Ziegel agrees with Charles Davidson of Standard & Poor’s that the latest HF problem will not result in major changes in regulation. Bove wrote in a recent report (though it is not clear from Financial News whether he was speaking of Amaranth or troubles like this in general, “While we do not doubt that there will be a great sound and fury, in the end it will signify nothing.”