Connecticut considering Hedge Fund bill
Connecticut, home to about 200 hedge funds, is considering their own hedge fund bill due to their frustration with Washington’s inaction. Last year a bill died in the House of Representatives requiring hedge funds and private equity funds to disclose conflicts of interest between investors and fund managers. The state feels that with recent bad press concerning hedge fund managers there is a need for more transparency throughout the hedge fund industry.
Opponents to the legislation voice concerns over a duplication of federal securities requirements and could become a financial burden on the managers themselves which would turn into a financial burden for investors as well. For Connecticut, hedge funds are a very important source of personal income tax revenue to the state, to create conflict with the natural flow of the existing hedge funds cash inflows now would create problems for the state itself later.
Many hedge funds have voluntarily registered with the SEC, the legislation would work towards making funds worth $100 million be required to register. This would require these specific hedge funds to more plainly state their objectives. Many hedge fund managers feel as though they already provide this information in the prospectus. A prospectus is a formal, legal document required by the SEC providing details about an investment and its offering to the public. A decent prospectus provides information on the funds objectives, risk, investment strategies, performance, distribution policy, fees, expenses and information about the funds management. This should state any conflicts of interest that investors would be concerned about.
Passing state regulations worry many hedge fund managers due to the possibility of their strategies leaking out to their competitors. Instead of passing a new law to requiring more hedge funds to file with the SEC, Connecticut could increase the amount of hedge funds the Department of Banking oversees. This could be done by raising the cutoff value for state regulated hedge funds from $25 million to $100 million. By increasing the hedge fund value the state is allowing for more hedge funds to be monitored, without overtly stepping on toes.
Finally, if an investor feels that they have not adequately been reassured by the information provided by the hedge fund then perhaps they should look elsewhere for their investment opportunities.
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