Fewer hedge funds now subject to reporting rule

[October 27, 2011]  WASHINGTON (AP) -- The largest hedge funds and private equity firms must report financial information to the government under a rule adopted Wednesday. But the Securities and Exchange Commission backed off broader reporting requirements for the funds after it drew heavy objections from the industry.

The final rule applies to hedge funds with $1.5 billion or more in assets and private equity firms with $2 billion or more and requires only annual reporting by private equity firms. In January, the SEC proposed reporting for firms with $1 billion or more in assets and would have made the reports quarterly for both large hedge funds and private equity funds.

The new reporting is mandated by the financial overhaul law passed last year. Federal regulators will use the data -- which will not be made public -- to monitor the funds' risks to the financial system.

Hedge funds are investment pools that use complex trades to seek big returns. They command trillions of dollars in assets and account for about 20 percent of all stock trading.

Private equity funds focus on buying and reselling companies. During the 2008 financial crisis, some hedge funds suffered huge losses and that contributed to the strain on financial markets, regulators said.

In final form, the rule also gives funds more time to file the reports than SEC initially proposed.

Hedge funds must make the reports within 60 days of the end of each quarter, and private equity funds must report within 120 days of the end of each fiscal year.

SEC Chairman Mary Schapiro said the changes made in the final rule "address issues" raised by those who submitted comment letters objecting to the proposal, while preserving the data's utility.

Schapiro said fund leaders objected most strenuously to the frequency and deadlines for the reports.

"We want the information that will be reported to regulators ... to be useful," she said before the vote. "It will not be useful if it is rushed or incomplete."

Rep. Darrell Issa, R-Calif., chairman of the House Oversight and Government Reform Committee, told Schapiro in a letter last month that he was concerned the requirements in the proposed rule "will impose a heavy compliance burden (on the funds) that will harm economic growth, reduce investment opportunities" and crimp the flow of money through the financial markets.

The funds will submit the reports to the SEC and the Commodity Futures Trading Commission, which is expected to adopt the rule in a week or so.

The information will be used by the Financial Stability Oversight Council, a body of regulators created by the 2010 overhaul law to keep watch over the financial system.

[Associated Press; By MARCY GORDON]

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