Investor Protection

The following issues are MFA’s priorities regarding investor protections / adviser registration as Congressional oversight and regulatory implementation of the Dodd-Frank Act continues:

 

Adviser Registration

The Dodd-Frank Act requires hedge fund advisers with $100 million or more in assets under management (AUM) and advisers to only private funds with at least $150 million in AUM to register with the Securities and Exchange Commission (SEC). Investment advisers with AUM below those thresholds are generally subject to state registration requirements. Hedge fund advisers are required to register with the SEC by March 30, 2012.

The Investment Advisers Act of 1940 imposes significant disclosure and compliance requirements on SEC-registered hedge fund advisers, including: regularly submitting information to the SEC regarding the adviser’s business that is made publicly available; reporting extensive systemic risk information to the SEC; providing detailed disclosure to clients; implementing comprehensive policies and procedures to ensure compliance with federal securities laws; maintaining extensive books and records; and being subject to periodic inspections and examinations by SEC staff.

As a result of the Dodd-Frank Act, the SEC will have clear oversight authority of, and regularly receive extensive information about, the private fund industry, and will be responsible for implementing and enforcing rules across all aspects of managers’ businesses. MFA believes this enhanced framework for regulating hedge fund managers is effective and should be maintained.

 

MFA View:

MFA supported the approach taken in the Dodd-Frank Act, which subjected managers of private pools of capital to oversight, supervision, and enforcement by the SEC as investment advisers under the Investment Advisers Act of 1940.


Oversight of Private Investment Advisers

The Dodd-Frank Act requires the SEC to study its examination program for all investment advisers and the extent to which the establishment of a self-regulatory organization (SRO) would improve the frequency of investment adviser examinations.

On January 14, 2011, SEC staff released its report under Section 914, “Study on Enhancing Investment Adviser Examinations.” The study assesses the SEC’s examination program and recommends, among other things, that Congress consider authorizing one or more SROs to examine SEC-registered investment advisers.

 

MFA View:

MFA believes that a well-resourced, highly trained, and competent SEC should function as the overseer of investment advisers.  An SRO would lack experience in regulating private fund managers, create inconsistent regulation, face difficult conflicts of interest, and ultimately diminish the quality of regulatory oversight of the private fund industry.


Aggregate Public Disclosure of Short Selling Information

The Dodd-Frank Act requires the SEC to issue rules providing for aggregate disclosure of short sale information.

 

MFA View:

MFA believes that, to the extent policy makers believe or require the “public disclosure” of short selling information, the public would benefit from aggregate reporting of trading activity in a security, including a breakdown of aggregate purchases, long sales, and short sales in a security. Aggregate reporting would bring greater insight to trading activity and address misperceptions in a market.