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MFA Chairman Criticises Hedge Fund Disclosure Act

George Crapple, chairman of the Managed Funds Association (MFA), last month testified before the Committee on Banking and Financial Services, House of Representatives, about H.R. 2924, the Hedge Fund Disclosure Act.

“We believe that H.R. 2924 does not represent a way forward toward preventing future LTCMs, but rather is a costly form of bureaucratic window-dressing – likely to obscure rather than illuminate important risk management issues raised by LTCM,” Crapple told the committee.

Crapple is also the co-chairman and co-chief executive officer of Millburn Ridgefield Corporation, a money manager and sponsor of hedge funds and other funds since 1971.

The MFA has previously testified on issues to which H.R. 2924 relates, arising from the September 1998 events involving Long-Term Capital Management (LTCM). “Our organisation represents major users of the derivatives and securities markets,” said Crapple. “As such, we would be the first to rise in support of measures meaningfully designed to reduce risks in the financial markets. However…this legislative proposal appears to rest largely on wishful thinking and its likely product will be, at best, an illusion of protection – one from which neither regulators nor the public should draw comfort.”

H.R. 2924 calls for disclosure of quarterly snapshot data by a few large hedge funds and “would not in any way suffice to address the credit risk management deficiencies associated with LTCM,” according to Crapple.

“If the reporting requirements of H.R. 2924 had been in effect in 1998, no coherent picture leading to a conclusion of systemic risk would have been uncovered. Numerous, much larger and equally highly leveraged institutions would not have reported under the proposal because they are not hedge funds. Nor would non-US hedge funds have reported. H.R. 2924 would illuminate a few pixels and leave the rest of the TV screen blank,” he added.

MFA continues to believe that the issues presented by LTCM are being addressed through public and private sector initiatives to bolster the risk management practices found to be deficient in the LTCM case, says officials.

“Improvements in credit discipline and risk management can and should be made,” he concluded. “But the healthy focus on these needed improvements since LTCM should not be diminished or deflected by the pursuit of hollow regulatory requirements, and no one should believe that the H.R. 2924 represents a solution to any problems.”

MFA is the Association for investment professionals in futures, hedge funds and other alternative investments. MFA has more than 700 members and, since its inception in 1991, has provided industry leadership in government relations, communications and public relations. MFA is headquartered in Washington, DC.

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