Funds of hedge funds aren’t the only ones getting dire warnings today. MarketWatch’s David Weidner writes that hedge funds have two choices: Police yourselves, or be policed. With the advent of the Securities and Exchange Commission’s hedge fund registration requirement this year, Weidner says the SEC is probably preparing for a sweep to gather information about the industry. In an industry where the SEC has brought more than 50 cases for malfeasance that has cost investors $1 billion, can real regulation be far off?
Weidner argues that hedge funds can preempt any such unpleasantness – and earn the gratitude of an SEC that is “pinching pennies” – by setting up a self-regulatory organization, á la the NASD. That way, the industry can determine just how strict its regulation is, rather than have the SEC do it for them. “The substantial majority of hedge fund advisers previously had adopted comprehensive compliance procedures,” according to hedge fund attorney William Natbony. Why not make them required?