ANALYSIS

Clash of the titans: investors and managers at odds over alternatives regulation

A battle has broken out between investors and suppliers over the regulation of hedge fund and private equity managers, with opposing testimony given to the US Senate by the country’s largest pension fund, the $180.9 billion CalPERS, and a US-based venture capital firm. In this “Have Your Say” column we ask you whether you agree with CalPERS that all hedge fund managers raising capital in the US should be forced to register with the Securities and Exchange Commission (SEC), or whether you think the current regulations are sufficient.

Testifying to the US Senate banking subcommittee on securities, insurance and investment recently on regulating
hedge funds and other private investment pools, Joe Dear, chief investment officer of CalPERS recommended that all investment managers raising funds in the US be forced to register with the SEC and be subject to its oversight.

However Trevor Loy, founder and general partner of Flywheel Ventures, a venture capital firm based in New Mexico, argued in his testimony that venture capital should be exempt from the requirement to register with the SEC under
the Investment Advisers Act and that additional SEC registration requirements could hamper venture activity.

He said that the venture capital industry’s activities were “not interwoven with US financial markets” and that
venture capital investment does not qualify as posing systemic risk for the following reasons:

*Venture capital firms are not interdependent with the world financial system

*The venture capital industry is small in size

*Venture capital firms do not use long-term leverage or rely on short-term funding

“We do recognise the need for transparency into our activities and, in that spirit, venture firms have provided information to the SEC for decades,” he said.

“We believe this information remains sufficient to meet the need for transparency without burdening our firms with additional regulations that do not further the understanding of systemic risk. We agree that those entities and industries which could cause financial system failure should be better monitored so that the events of 2008 are never repeated. However, venture capital is not one of those industries. Our size and operations within the private market do not pose broader financial risk.”

Should hedge fund managers be forced to register with the SEC?