State Oversight of Some Hedge Funds Raises Flags

By KARA SCANNELL
WSJ

Pending legislation aimed at tightening regulation of financial services would give state authorities significant clout in overseeing hedge funds, a move some regulators fear could undermine Congress's goal.

The House Financial Services Committee passed a bill Wednesday that gives states power to regulate all investment advisers, including hedge funds, that manage less than $100 million. The Securities and Exchange Commission would oversee larger advisers.

Currently, many hedge funds often aren't required to register with regulators, but do anyway. Advisers managing $25 million or more fall under SEC regulation. The House bill would shift 43% of those advisers to state regulation, and put under state purview an unknown number of additional advisers that aren't registered now. Regulators estimate that roughly 710 advisers of private funds would move to state oversight.

The bill is part of a larger effort to step up regulation in the wake of the financial crisis, which some blame on poor monitoring of risky corners of the financial world.

(Original here.)