U.S. senator alarmed at hedge fund risk to pensions

Date: Monday, October 16, 2006
Author: Reuters

Charles Grassley wrote a letter to federal agency heads asking to report on transparency requirements facing hedge funds.

WASHINGTON (Reuters) -- U.S. Senate Finance Committee Chairman Charles Grassley said in a letter to federal agency heads on Monday that he is alarmed by the risks hedge funds pose to pension holders.

Grassley asked the agency heads - including Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox - "to report to him on any transparency requirements facing hedge funds, and whether their agencies could require more transparency."

Hedge funds are lightly regulated capital pools popular with the wealthy and financial institutions, such as pension funds and endowments. Hedge fund managers are able to use more aggressive investment strategies than those running conventional mutual funds.

"We recently enacted pension reforms to increase transparency for pension-holders about how their money is invested," Grassley, an Iowa Republican, said in the letter. "Now we're learning hedge funds pose huge risks to pension-holders."

"It's disturbing that we can't even come close to understanding the extent of the risks because hedge funds operate in such a secretive way," he said. "We need to get a handle on this situation before more hedge funds go belly up and leave rank-and-file investors in the ditch."

In addition to Paulson and Cox, Grassley addressed the letter to Labor Department Secretary Elaine Chao, Commodity Futures Trading Commission Chairman Reuben Jeffery and Vincent Snowbarger, Pension Benefit Guaranty Corp. interim director.

The House of Representatives passed a bill last month calling for a federal study of hedge funds, marking the latest step in the government's effort to come to grips with a $1.2 trillion industry that has become a powerful financial force.

House passage of the bill came days after hedge fund Amaranth Advisors disclosed the biggest hedge fund loss ever - about $6 billion - on wrong-way natural gas market trades.