Hedge Fund Study Act
HEDGE FUND STUDY ACT -- (House of Representatives - September 27, 2006)
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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 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.
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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.
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