Mutual Funds, Junk Bonds And Hedge Funds

US regulator the Securities and Exchange Commission (SEC) has been looking for some time now at the relationship between mutual funds firms, and other money managers, and retirement plan consultants. And the SEC is thought not to like some of the things that it has discovered.

There are now stories circulating that the SEC may have uncovered some 'commercial' arrangements between money managers and pension plan consultants. There are claims that some firms may have paid the consultants to recommend their funds and that these arrangements were not disclosed to clients signing up for the investments. The SEC may bring enforcement action against certain firms and individuals and fines and other penalties could be on the cards.

Now, although US junk bond investors are not seeing the dramatic returns of in excess of 24% they saw in 2003, those funds are still comparing favourably to intermediate Treasury Bond offerings this year - a 6.14% return compared to just 3.27%.

And finally, the hedge fund industry has now been dragged kicking and screaming into the world of oversight. Against a background of hedge funds assets which have grown from $39bn in 1990 to $866bn this year, the SEC really had no choice but to take on oversight responsibilities. In fact, SEC chairman William Donaldson said that not 'to do so would be a major dereliction of the commission's' duties.

The new SEC hedge fund registration regulation will not come into effect until 2006.

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