[Congressional Record Volume 152, Number 123 (Wednesday, September 27, 2006)]
[House]
[Pages H7596-H7598]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
HEDGE FUND STUDY ACT
Mr. GARRETT of New Jersey. Madam Speaker, I move to suspend the rules
and pass the bill (H.R. 6079) to require the President's Working Group
on Financial Markets to conduct a study on the hedge fund industry, as
amended.
The Clerk read as follows:
H.R. 6079
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Hedge Fund Study Act''.
SEC. 2. STUDY AND REPORT ON HEDGE FUND INDUSTRY.
(a) Study.--The President's Working Group on Financial
Markets shall conduct a study of the hedge fund industry. The
study shall include an analysis of--
(1) the changing nature of hedge funds and what
characteristics define a hedge fund;
(2) the growth of hedge funds within financial markets;
(3) the growth of pension funds investing in hedge funds;
(4) whether hedge fund investors are able to protect
themselves adequately from the risk associated with their
investments;
(5) whether hedge fund leverage is effectively constrained;
(6) the potential risks hedge fund pose to financial
markets or to investors;
(7) various international approaches to the regulation of
hedge funds; and
(8) the benefits of the hedge fund industry to the economy
and the markets.
(b) Report and Recommendations.--Not later than 180 days
after the date of enactment of this Act, the President's
Working Group on Financial Markets shall submit a report on
its findings to the Committee on Financial Services of the
House of Representatives and the Committee on Banking,
Housing, and Urban Affairs of the Senate. The report shall
include recommendations, including--
(1) any proposed legislation relating to appropriate
disclosure requirements for hedge funds;
(2) the type of information hedge funds should disclose to
regulators and to the public;
(3) any efforts the hedge fund industry or regulators of
financial institutions should undertake to improve practices
or provide examples of successful industry initiatives; and
(4) any oversight responsibilities that members of the
President's Working Group should have over the hedge fund
industry, and the degree and scope of such oversight.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from New
Jersey (Mr. Garrett) and the gentleman from Massachusetts (Mr. Frank)
each will control 20 minutes.
The Chair recognizes the gentleman from New Jersey.
General Leave
Mr. GARRETT of New Jersey. Madam Speaker, I ask unanimous consent
that all Members have 5 legislative days within which to revise and
extend their remarks on this legislation and to insert extraneous
material thereon.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from New Jersey?
There was no objection.
Mr. GARRETT of New Jersey. Madam Speaker, I yield myself such time as
I may consume.
Madam Speaker, before I begin, I would first like to wish my friend
and colleague and the chief sponsor of this legislation, Congressman
Mike Castle, a very speedy recovery. Our thoughts and prayers are with
him and his family, and we hope to see him back here on the floor soon.
I also, Madam Speaker, wish to take this time to thank both Chairman
[[Page H7597]]
Oxley and Chairman Baker for their support of this study and the
ongoing efforts to address the evolving hedge fund industry.
Madam Speaker, I come to the floor tonight to support H.R. 6079, the
Hedge Fund Study Act, introduced by my colleague, Mike Castle. This
legislation will better enable this House to examine the role of hedge
funds in our economy through a thoughtful study and report by the
President's Working Group on Financial Markets, the PWG.
The hedge fund industry represents a vital sector of the American
economy, as evidenced by its market growth and capital development.
Hedge funds are now a $1.2 trillion industry; and they can be a high-
risk, high-stake investment. While they are usually targeted to wealthy
investors, hedge funds are increasingly tied to pension plans and,
consequently, to the financial earnings of millions of middle-class
Americans. For that reason, I think it is necessary that we further
explore hedge funds and the potential impact and benefits that they
offer to the financial markets and investors as well.
Specifically, H.R. 6079 will help Congress learn more about this
vibrant industry. The study will examine hedge fund growth and the
potential risks as well as the benefits of the hedge fund industry to
the economy and the markets.
The hedge fund industry has such a significant impact on the markets
and was last reviewed by the PWG study on this topic way back in 1999.
But the growth of the hedge fund industry over the past 7 years makes
this legislation timely. I would call your attention to the
improvements of the hedge fund industry risk management function,
improvements that were recommended in that study in 1999.
Counterparties and financial institutions have taken affirmative
steps over the past 6 years now to mitigate exposures to risk through
innovative financial products and the allocation of greater resources
toward a dedicated risk management role.
Additionally, the hedge fund industry has in the past demonstrated
its willingness on its own to resolve market challenges. For example,
through a self-imposed obligation, derivative market participants,
including hedge funds, directed their efforts toward eliminating a
credit derivatives paperwork backlog that in past years was caused by
explosive growth within those markets. The industry has now
successfully reported that it has made substantial progress in
increasing operational efficiencies and operational risks.
Again, at this time, I support this legislation; and I also should
point out that I would like to thank Congressman Chris Shays from
Connecticut for his expertise in this area, as many of the hedge funds
that we speak of here tonight are near in his district. I compliment
the Congressman and his efforts to getting this bill through this
House.
Madam Speaker, I reserve the balance of my time.
Mr. FRANK of Massachusetts. Madam Speaker, I yield myself such time
as I may consume.
Madam Speaker, I am in substantial agreement with my colleague from
New Jersey, but, first, and most of all, in expressing our best wishes
to our colleague, the gentleman from Delaware, who has been such a
constructive Member and whom we hope to see back with us very soon.
Secondly, I think the gentleman has accurately portrayed the
situation. About a month or so ago, the Circuit Court of Appeals ruled
that the SEC had twisted a statute further out of shape than is
permissible to get some jurisdiction over hedge funds.
I think the Circuit Court made the correct legal interpretation. The
SEC had been reaching, and I think the decision was a correct one. I
then, however, filed a bill to change the statute, not because I or I
think anyone else is able to be sure right now exactly what we should
do about hedge funds, but because I would agree with the gentleman from
New Jersey, this is an important, relatively new phenomenon. It has a
major impact in our economy.
At the rate at which they are growing, it may be we will reach the
point in which there is more money in hedge funds than there is money;
and that at least ought to call up some attention. I simply did not
think we should adjourn for the year with some people thinking that we
have now decided that the appropriate action is nothing at all. That
may in the end be a decision, but I do not think it is one that we have
yet had a chance to look at.
So there were various ways that we were looking at this. I had a
bill, the gentleman from Louisiana, the chairman of the subcommittee,
had a bill. The gentleman from Delaware, a very thoughtful Member,
suggested this as an approach. It has the advantage, I think of saying,
look, we believe there is something that has to be looked at.
The gentleman from New Jersey correctly mentioned one of the things
that has a number of people particularly concerned, which is the
increasing interface between hedge funds and pension funds. That is
something that we want to look at. So I think that we have an
appropriate vehicle today, legislatively, to say this is something we
want to look at. We will come back next year and deal with it further.
I think this is the appropriate way to do it.
Madam Speaker, I yield back the balance of my time.
Mr. GARRETT of New Jersey. Madam Speaker, I would just point out with
regard to that court case, an interesting thing with regard to that
court case was the fact that the court, in part, reached a decision as
it did because it said, I am not quoting it, but, in essence, that they
could not define exactly what a hedge fund was.
So perhaps with the benefit of this study that we can be able to rein
that in and to address that issue as well.
Mr. FRANK of Massachusetts. Madam Speaker, will the gentleman yield?
Mr. GARRETT of New Jersey. I yield to the gentleman from
Massachusetts.
Mr. FRANK of New Jersey. Madam Speaker, I would say yes to the
gentleman, that this is a case when we could all agree, apparently,
that a little judicial activism was a good thing.
Mr. GARRETT of New Jersey. Madam Speaker, reclaiming my time. I would
like to make one final point on this. I mentioned during my earlier
remarks the improvements that the industry has made on its own in this
year.
And I should also point out, I think Mr. Castle would appreciate the
fact, that the Managed Funds Association, which is the funds of the
association of the hedge funds, in essence, are in support of this
legislation as well. They have indicated the hedge funds are currently
subject to numerous regulations already relating to advertising and
broad reporting requirements, ERISA and other securities. But they do
as well see the benefit to look at both sides of the equation from a
balanced approach, both the risk and the potential difficulties as
well.
So I just wanted to add that to the Record as well.
Mr. SHAYS. Mr. Speaker, I rise in support of the Hedge Fund Study Act
and appreciate the work of our colleague, Mike Castle, to craft this
legislation and bring it to the floor.
Mr. Speaker, the hedge fund industry plays a critical and special
role in our capital markets and is enormously important to helping
institutional investors diversify their investment portfolios and meet
their future funding needs.
While the numbers fluctuate some, there are believed to be close to
8,000 hedge funds that manage approximately $1 trillion in assets.
Connecticut's Fourth Congressional District, which I'm grateful to
represent, is home to several hundred of the most successful hedge
funds.
Over the past few years, the industry has received increasing
attention from the media, Congress and the Securities and Exchange
Commission (SEC). I happen to believe that strong oversight of our
financial markets is critical to our Nation's economic well-being.
While hedge funds, which have knowledgeable and sophisticated
investors, do not require the same level of scrutiny as is paid to the
mutual fund industry, it seems to me more transparency and better
government and regulator understanding of the industry will ultimately
benefit investors and managers alike.
In my judgment, this act is a sensible approach to the issues raised
by the growth and importance of hedge funds to the capital markets. We
should require the Presidential Working Group on Financial Markets to
study and make recommendations in a final report regarding efforts of
both the industry and its regulators to improve practices.
Again, I appreciate this legislation coming to the House floor and
urge its passage.
Mr. GARRETT of New Jersey. Madam Speaker, I yield back the balance of
my time.
[[Page H7598]]
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from New Jersey (Mr. Garrett) that the House suspend the
rules and pass the bill, H.R. 6079, as amended.
The question was taken; and (two-thirds having voted in favor
thereof) the rules were suspended and the bill, as amended, was passed.
A motion to reconsider was laid on the table.
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