The hedge fund industry operates in a notorious shroud of secrecy. Investors and government regulators know little about hedge funds' practices, activities and leadership, in stark contrast to the strict regulations and public scrutiny to which mutual funds and other investment vehicles are subject.
Since June 2004 the SEC has been trying to fix that disparity with an amendment to the 1940 Advisers Act that would require hedge fund managers who oversee more than $25 million to register with the commission and submit to the same compliance rules as other registered investment advisers. The amendment narrowly passed near the end of William Donaldson's chairmanship in December 2004, and new chairman Christopher Cox has vowed to uphold it.
Despite the vocal opposition to the new regulation, the tide of SEC oversight already seems to be turning. Prior to the rule's passage, 40 percent of hedge fund managers had already voluntarily registered with the commission.