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S.E.C. Rule Lifts Lid on Hedge Funds

October 26, 2011 by Leave a Comment

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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U.S. Seeks Ideas on Renting Out Foreclosed Property

August 11, 2011 by Leave a Comment

WASHINGTON — Uncle Sam wants you — to rent a house from Uncle Sam.

The Obama administration said on Wednesday that it was soliciting ideas on how to turn the federal government’s inventory of foreclosed houses into rental properties that could be managed by private enterprises or sold in bulk.

The goal, the administration said, is to stabilize neighborhoods where large supplies of empty, foreclosed properties have hurt property values. In addition, the plan is an effort to clear the nation’s balance sheet of real estate holdings that, because they have been difficult to sell individually, have hung over the housing market and stunted sales of existing homes and new construction.

The Federal Housing Finance Agency, the Department of Housing and Urban Development and the Treasury Department are jointly requesting ideas for sales, partnership ventures or other strategies that would help to unload approximately 250,000 properties owned by Fannie Mae, Freddie Mac and the Federal Housing Administration. Those properties account for about half of all properties that have been foreclosed upon and are still awaiting resale nationwide.

As it considers the proposals, the government-sponsored enterprises that now own the houses will continue to offer individual properties for sale, Edward J. DeMarco, acting director of housing finance agency, said Wednesday. But the government says it believes that given the slow pace of those sales, it must find new ways in which properties can be pooled, sold and privately managed as rentals.

Greater flexibility in disposing of the houses will have other benefits as well, Timothy F. Geithner, the Treasury secretary, said. “Exploring new options for selling these foreclosed properties will help expand access to affordable rental housing, promote private investment in local housing markets and support neighborhood and home price stability,” he said in a statement announcing the new program.

While home prices have remain depressed since the 2008 financial crisis, rental prices have not come down. The Joint Center for Housing Studies at Harvard University reported in the spring that more than 10 million households — or one-quarter of all renters — pay more than half their income for housing, a record level.

“We have to find and promote new ways to alleviate the strain on the affordable rental market,” Shaun Donovan, secretary of the Department of Housing and Urban Development, said.

John Taylor, president of the National Community Reinvestment Coalition, said in an interview that an added benefit of such a program would be the creation of construction jobs for rehabilitation of the properties.

The Obama administration and Congress have been working on plans to wind down Fannie Mae and Freddie Mac, which the government took over in 2008 as losses on loans guaranteed by the agencies expanded.

Of the 248,000 homes owned by Fannie Mae, Freddie Mac and the F.H.A. at the end of June, 70,000 were listed for sale, said Corinne Russell, a housing finance agency spokeswoman. The remainder were not yet on the market or the agencies had already received an offer from a prospective buyer.

But it is possible that hundreds of thousands of more homes that are now in the foreclosure process could come into the possession of the federal government in the next few years, housing experts say.

“This is a call for innovation and an opportunity for businesses to not only make money and create jobs, but also provide affordable rental housing for those who need it and strengthen our communities at the same time,” said Senator Jack Reed, Democrat of Rhode Island, who has pushed for such a program.

The proposals are at an early stage, and there is no guarantee that any such programs will go forward. After considering the responses to the request for information, which are due by Sept. 15, the entities may issue a request for proposals to put specific programs in place either jointly or separately.

Among the strategies on which the administration is seeking comment are rent-to-own programs, in which previous homeowners or current renters could lease properties as a path to ownership, and ways in which the properties can be used to support affordable housing.

Article source: http://feeds.nytimes.com/click.phdo?i=51518ba2336f1991fd8f60e61e01c110

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DealBook: S.E.C. Approves New Reporting Requirements for Hedge Funds

June 22, 2011 by Leave a Comment

A divided Securities and Exchange Commission approved new rules on Wednesday that would impose sweeping disclosure requirements on large hedge funds and other private investment advisers, a first for an industry that has long eluded Washington oversight.

The rules will require hedge funds, private equity shops and other advisers that manage more than $150 million to register with the agency and turn over crucial information, including the funds they oversee and their investors. Venture capital funds and some small hedge funds are excused from the rules, although these firms will still have to report some basic information to regulators.

“Today’s rules will fill a key gap in the regulatory landscape,” Mary L. Schapiro, the agency’s chairwoman, said at a public meeting in Washington.

The new oversight came as no surprise to the industry. The long-awaited rules were outlined in the Dodd-Frank act, the financial regulatory law enacted last year, and largely spelled out in November when the S.E.C. first proposed the rules.

“The rules at the end of the day are not enormously onerous,” said Laura Corsell, a former S.E.C. lawyer who now represents investment advisers as a partner at the law firm Montgomery McCracken.

Still, regulators agreed to delay the start date of the rules until March 30, 2012, a reprieve of nearly nine months.

The S.E.C. also approved a definition for the venture capital industry, offering those entities relief from some reporting requirements. A venture capital fund, according to the new description, is one that invests in “qualifying investments,” mainly shares in private companies. But it may invest up to 20 percent of its capital in “nonqualifying investments” and have some short-term holdings.

The rules do provide regulators a rare peek into venture capital funds. Exempt funds will have to file periodic reports that provide basic information, like the name of its owner, potential conflicts of interest and disciplinary problems.

Larger firms that manage more than $150 million will disclose the size of their funds and the type of clients who invest in them. The funds will also name their “gatekeepers” — the auditors, prime brokers and marketers that service the funds.

The requirements are a sharp change for most hedge funds and private equity firms. Until now, federal regulators kept tabs only on firms with 15 or more funds.

The S.E.C. unanimously agreed on the definition of venture capital funds, but the agency was split 3 to 2 on broader reporting requirements for money managers.

Kathleen L. Casey, a Republican commissioner, said the rule “pays lip service” to the exemption.

While the new rules will not begin until next March, many hedge funds say they are ready to register in July when the rules were originally supposed to take effect.

“Given that this deferral just happened today, most firms were prepared several weeks ago to press the button to file,” said Steve Nadel, a partner at the law firm Seward Kissell, which represents hedge funds.

Azam Ahmed contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=dde991723be3bd1f6e7fe4d12571feab

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