WASHINGTON — Large hedge funds, the secretive private investment outfits that use extensive borrowing to magnify the returns of their portfolio bets, will be required to report detailed information on their holdings to federal regulators under a new rule adopted by the Securities and Exchange Commission on Wednesday.
The purpose of the quarterly disclosure is to give regulators the ability to monitor the risks that the funds pose to the overall financial system, something that officials at the Federal Reserve, the Treasury Department and the S.E.C. did not have during the financial crisis.
The data will not be public, however. It will be visible only to the regulators, including the Financial Stability Oversight Council, which was created by the Dodd-Frank regulatory law to oversee risks to financial institutions and markets.
For now, even the details of what the S.E.C. approved on Wednesday will be confidential. Because the new rules are a joint release with the Commodity Futures Trading Commission, the S.E.C. won’t make public the actual form that it approved in a public meeting until after the C.F.T.C. approves it.
The commodity commission is expected to vote “within the next week,” the S.E.C. said. One S.E.C. official said that might be as soon as Wednesday.
The data collection “follows the lessons learned during the financial crisis — lessons about the importance of monitoring and reducing the possibility that a sudden shock or failure of a financial institution will cascade through the entire financial system.” Mary L. Schapiro, the chairwoman of the S.E.C., said.
The commission, which currently has four sitting members, voted unanimously to approve the new rule.
Managers of funds with more than $1.5 billion in assets will be required to disclose aggregated information on how much the fund has invested in various asset classes, where investments are concentrated geographically, and how active the fund is in trading its portfolio.
In addition, large funds must disclose how leveraged their investments are — that is, the degree to which the size of the investments are enhanced using borrowed money — and how liquid, or quickly sold and converted into cash, they are.
Large funds will be required to report the information quarterly, within 60 days of the end of the quarter. They are not required to report “position information,” or details on individual investment holdings, however.
Nevertheless, the filings will provide an extensive peek inside funds whose trading activity can move financial markets, and whose risk-taking enables the funds both to book outsized returns and to suffer large losses.
Hedge funds with $150 million to $1.5 billion in assets will be subject to less extensive disclosures, as will private equity funds.
The new form has “substantial modifications” from the proposal that the S.E.C. released in February. That form drew broad complaints from hedge fund managers and at least one member of Congress, who said in comments filed with the commission that the requirements posed an unnecessary regulatory burden on investment managers.
They also expressed concern about whether the regulators will be able to keep the proprietary information confidential. Hedge funds closely guard their trading information and investment strategies.
If approved as expected by the C.F.T.C., the new rules will go into effect in mid- to late-2012, depending on a fund’s size.
Hedge funds will be required to provide some information to the public under new rules adopted by regulators in June.
Those regulations required limited disclosures, however, detailing only general information about a fund’s size, its largest investors and the fund’s “gatekeepers,” including its auditors, the brokerage firms that help to execute its trades and the marketers that service the fund.
This article has been revised to reflect the following correction:
Correction: October 26, 2011
An earlier version of this article stated incorrectly when large hedge funds would be required to report information on their holdings. The information is due quarterly, not annually, and within 60 days of the end of the quarter, not 120 days of the end of a fiscal year.
Article source: http://feeds.nytimes.com/click.phdo?i=6a2eaf14ee916092cf4dc1edaa89eb08
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