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Big Hedge Funds Welcome Dodd-Frank Transparency Regs

Hedge funds think the finance reform law will help them be seen as a more mainstream investment vehicle by institutional investors, according to a study.

Wall Street generally loathes having the government force new regulations upon them, as was the case with the Dodd-Frank bill.

But even with the cost of doing business set to climb once nearly 400 new rules take effect, hedge funds are one of the few corners of the financial services sector in favor of some aspects of the finance reform law.

The new regulations will actually help hedge fund managers raise capital, while reassuring investors along the way, according to a study conducted by Hofstra University's business school, and the accounting and advisory firm EisnerAmper LLC.

[For More On The Top Hedge Fund Strategies of 2012.]

The survey of more than 40 senior managers from hedge funds and asset management firms found a majority expect the transparency requirements imposed on the industry by Dodd-Frank to be a positive change. Half of the survey's respondents were from funds with more than $1 billion in assets under management across a range of strategies, including long-short funds, global macro, fixed income and arbitrage.

The research noted that larger firms in particular are welcoming the new SEC registration requirements, along with the additional oversight from the Treasury Department and the Federal Reserve. "Managers view registration with the SEC as a cost of doing business," said EisnerAmper partner Nicholas Tsafos. "It makes investors more comfortable with hedge fund investing."

But although Dodd-Frank could be a net positive for the industry as far as turning hedge funds into a more mainstream investment vehicle for institutional investors, the research noted there are some causes for consternation.

The research said nearly 63 percent of respondents from larger hedge funds believe the new rules could harm U.S. competitiveness. Nearly 78 percent of the respondents from smaller funds shared that opinion.

And very few managers felt the additional oversight from the newly formed Federal Stability Oversight Council (FSOC) would be able to shore up risks to the nation's financial system. Only 11.1 percent of the responders from large funds and 10.5 percent from smaller funds held that view, the study said.

"The regulatory landscape for hedge funds in 2012 is dramatically different from what came before as Dodd Frank's rules become final," Tsafos said. "While the large firms are embracing the changes, they are threatening to smaller hedge funds as startup costs increase."

As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced Trading in 2010, Grant's news analysis has touched on everything from the latest ... View Full Bio

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