Hedge Fund Assets Soar Under New SEC Laws

Hedge Fund Assets Soar Under New SEC Laws

The listed value of assets under management at many hedge funds is increasing by huge magnitudes as funds comply with the Dodd-Frank bill and file with the SEC. Under the new regulations firms must register with the SEC and must for the first time disclose the value of assets they have that are financed by borrowing.

That rule change is having a multiplication effect on the figures given by the funds and the trend will continue as more funds register with the regulator and the true value of their assets is found out. The news was reported recently by Miles Weiss at Bloomberg.

Qualivian Investment Partners Up 30% YTD; Long ORLY Thesis

Qualivian Investment PartnersQualivian Investment Partners commentary for the second quarter ended July 30, 2020. Q2 2020 hedge fund letters, conferences and more “Short-term investors will accept a 20% gain because they didn’t spend the time to develop the conviction and foresight to see the next 500%.” - Ian Cassell Executive Summary Readers of investment letters fall into Read More

To give some example of the scale of multiplication involved in the recent requirements; the fifty largest funds under management under previous rules were worth a total of $613 billion, while under the new rules they are worth around $1.35 trillion, an increase of more than double.

One of the biggest movers in the new regime was Ken Griffen’s Citadel which listed having $12.6 billion in Net Assets though its filings with the regulator show it has $115.2 billion in assets. That’s a rise of over 910% in listed value. Seth Klarman’s Baupost is now worth around $24 billion in its filing with the regulator.

The move, and the significant increase in the scale of measurable assets, might lead to greater federal oversight of funds as the SEC sees the rate at which the firms are leveraging themselves more clearly.

This will be one of the most prominent early features of the Dodd Frank bill and will serve as an interesting precursor to the regulator’s handling of the coming rules contained in the bill. The new rules will also require hedge funds to disclose their assets in the same way on a quarterly basis, something we have previously reported is driving many of them to become family offices rather than traditional funds.

The provisions of the Dodd Frank bill are making many in the investment sector very nervous and this will not ease tensions in the industry. Investors will be worried about pressure from regulators continuing to be an obstacle as it has in the past couple of years.

Since the 2008 financial crisis regulators have much more ably let their presence be felt on Wall Street. The multiplication in assets under the new filing guidelines will have many nervous about becoming a target as their leveraged assets become obvious and their size becomes more attractive to overseeing eyes. The effect this has on day to day business will surely be seen in the coming year, though from recent reactions much can already be ascertained.