Wednesday, July 19, 2006

Hedge Funds: the Phantom $1 Trillion Resurfaces

On last evening's Nightly Business Report, former SEC Commissioner Laura Unger mentioned that assets held by hedge funds had tripled in two years, now totalling $2.4 trillion.

That's the same figure an SEC spokesman recently disavowed. As we noted in a recent post, the overnight doubling of hedge fund assets, from about $1.2 trillion to $2.4 trillion, seems to have resulted from double or triple counting.

Whether hedge funds hold upwards of $1 trillion or $2 trillion, Unger is among those who hear an ominous ticking sound.

“If the SEC does not find a more credible means to regulate hedge funds,” Unger states, “ one or both of two things will happen. One, it will regulate by enforcement, no doubt vigorously. Two, a crisis will occur and Congress will respond with a whole set of new requirements. Many question the need for regulation. History shows that it takes a crisis to demonstrate that need. I guess that makes it near impossible to regulate ahead of the crisis.”

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