Call it the Millionaire Protection Rule. The SEC will reportedly propose a higher bar for hedge fund investors when its commissioners meet in December. Current rules require “accredited investors” in hedge funds have at least $1 million in assets or have reported income above $200,000 for the past two years. Recently some lawmakers have said that increases in housing prices have upped the value of assets of many otherwise not-so rich Americans, making them eligible to invest—and possibly lose their savings—in hedge funds.
Is this really a problem? We haven’t seen any statistics on how many of these millionaires-in-housing only are putting their life-savings into hedge funds, much less losing their life savings in recently collapsed hedge funds. Without evidence to the contrary, it’s hard not to suspect that this is a manufactured “crisis” cooked up by regulators and lawmakers.
On a positive note, SEC commissioner Chris Cox’s proposal to up funding for investigating hedge fund fraud is probably a good idea. The secrecy of many hedge funds creates opportunities for fraud, and just the knowledge that the SEC is taking this seriously should provide some disincentives for would-be wrong-doers.
SEC wants bigger bankrolls for hedge fund investors [Bloomberg in the Chicago Tribune]
Posted by Laguna Beach Hedgie, Nov 13, 2006 12:13PM
If lawmakers and bureaucrats are worried that pension funds are putting assets at risk, the solution, of course, is not to attack hedge funds, but to regulate pension funds.
I suspect that Cox's agenda is due to pressure from corporate donors and coprorate lobbyists who, perhaps stung by activist hedge funds or apprehensive of impending trouble, are putting the heat on lawmakers to do something.