February 21, 2007
I feel that the proposed rule to restrict availability of
hedge funds to persons of at least $2.5 million investable
assets is extremely ill considered. It is true that
such investments can increase risk and leverage, but I
urge you to consider the following two facts: (1) such
risks can equally well be taken by investing in many asset
classes that have very low margin requirements, such as
foreign exchange and futures; (2) hedge funds are the ONLY
way that certain investment objectives, in particular
objectives involving LOWERING risks, can be achieved by
individuals who do not have the time to handle all their
own investment affairs. For instance, the only way an
individual could be exposed to a certain stock-market
sector but not the entire stock market involves selling
stocks short (or an equivalent strategy). This can be
a far LESS risky procedure than the "standard" long-only approach, and depending on the situation, could be less risky than investing in index funds. It seems to me to be
unfair and discriminatory to legislate that those persons
that are not already wealthy should be prohibited from guarding themselves against the risk of a stock-market crash, which as we know is something that happens every few decades.
From the pages of history:
Colbert: Que faut-il faire pour vous aider?
Legendre: Nous laisser faire.
Yours very respectfully,