A proposal to the House pension reform bill that would loosen Employee Retirement Income Security Act compliance for hedge funds has provoked a variety of reactions. The proposal would allow hedge funds to raise their threshold of investments in pension funds from 25% to 50% without triggering the requirements to comply with ERISA. William Galvin, Massachusetts Secretary of the Commonwealth, expressed concern that the provision on lowering the ERISA threshold was introduced surreptitiously as a rider to the pension reform bill, he said. "Many of the parties that could be affected have no idea that this is happening," said Galvin, who was addressing the North American Securities Administrators Association's forum on hedge funds held in New York on Tuesday.

Another troubling proposal would exclude state pension plans from the 50% calculation, he said. If the provision had been a stand-alone bill rather than a rider, it would not have survived, Galvin told CR. But Paul Weisenfeld, senior v.p. at Smith Barney Alternative Investments, said some pension funds may welcome the lower threshold as a means to broaden their investment options. At present, pension funds seeking to invest in hedge funds may need to turn to multiple hedge funds to avoid triggering the 25% threshold, he said.

A compliance officer to a start-up fund of hedge-funds told CR that her firm will be seeking ERISA money. The raised threshold may not be particularly significant, however, because the firm still plans to make the fund ERISA-compliant, she said.