Congressional Hearing Held on Hedge Fund Regulation
Prominent hedge fund managers were among those who testified before the House Committee on Oversight and Government Reform (the "Committee") on November 13, 2008, in a hearing aimed at examining the role of hedge funds in the current financial crisis and determining appropriate levels of government oversight of hedge funds. There was a general consensus among the hedge fund managers and lawmakers about the need for greater transparency and additional regulation within the hedge fund industry. Indeed, most of the hedge fund managers supported a requirement to provide additional information to regulators on a confidential basis.
Kenneth Griffin, CEO of Citadel Investment Group, spoke out against greater regulation of the industry, but indicated that he would not ultimately be averse to such regulation if it furthered fair, competitive and liquid financial markets. John Paulson, president of Paulson & Co., noted the need to reduce leverage in the financial system by raising margin requirements. George Soros, founder of Soros Fund Management, testified that regulators had to "accept responsibility for controlling asset bubbles," including controlling credit. In addition, Mr. Soros indicated that it would be advantageous to reactivate certain measures that have fallen into disuse, such as margin requirements. Mr. Soros also noted that implementing or removing regulation is a delicate balancing act with potentially negative consequences at either extreme, as exemplified by the current financial crisis which, in Mr. Soros's view, resulted from excessive deregulation.
James Simons, director of Renaissance Technologies, suggested requiring "all market participants to report their positions to an appropriate regulator and then allowing the New York Fed to have access to aggregate position information and to recommend action, if necessary." Mr. Simons noted, however, that a fund's specific information should not be released publicly. Additionally, Mr. Simons did not oppose the idea of regulation in the form of more detailed reporting to the SEC, with the information aggregated and passed to the Federal Reserve.
With respect to the tax treatment of hedge fund managers' income, Mr. Griffin testified that he was in favor of consistent treatment of long-term capital gains taxes, regardless of whether those capital gains were generated by a hedge fund manager or any other market participant (i.e., oil and gas and other partnerships). Philip Falcone, senior managing director of Harbinger Capital Partners, agreed that it was important not to differentiate between hedge fund managers and people in other sectors who receive income from partnerships in regard to tax rates. Mr. Paulson espoused the view that the current tax system is fair and does not create a loophole for hedge fund managers.
In addition to hedge fund managers, the Committee also heard testimony from several scholars. Professor Joseph Bankman of Stanford Law School was critical of the current policy of taxing carried interest at the capital gains rate rather than at the ordinary income rate. The scholars generally agreed on the importance of hedge fund regulation, however, they differed on the type of framework that would be optimal effecting such regulation. MIT professor and hedge fund manager Andrew Lo suggested that large hedge funds should be overseen by the Federal Reserve Bank, while Northwestern School of Law professor emeritus and former SEC Chairman David Ruder favored a joint regulatory approach in which the SEC would oversee hedge funds and share risk information with the Federal Reserve. Finally, the scholars generally concurred that hedge funds were not the primary cause of the financial crisis; only Professor Bankman took a contrary position.
No comments:
Post a Comment