From: Derek Jaskulski [Derek@portlandglobal.com]
Sent: Thursday, April 29, 2004 12:29 PM
To: rule-comments@sec.gov
Subject: Hedge fund regulation (4-476)

Dear Sir/Madam,

 

I was distressed to read that Commissioners Glassman and Atkins oppose the 
regulation of hedge funds. Isn’t the fact there are now more hedge funds than 
mutual funds or listed stocks reason enough to merit some oversight? But there 
are even more basic reasons why the SEC should not shirk its duty.

1) Capital markets exist to bring industry and savers together. As such, they 
are crucial to the economy. Those who feel hedge funds should be left to their 
own devices have lost sight of this most basic fact.

2) There is an out-dated notion that somehow the markets are much bigger than 
the hedge funds. Not when hedge funds outnumber mutual funds and leverage 
their capital by a factor of 2 to 10 times. 

3) Most hedge fund strategies require market volatility and many only make 
sense in bear markets (why pay a 2% management fee in a rising market?).  This 
is dangerous because the markets now often lead rather than follow the 
economy. Falling markets quickly cause business and consumer confidence to 
plune. The correlation has become obvious. When you have a class of levered, 
sophisticated investors whose very livelihoods depend upon falling, volatile 
markets it is a very dangerous mix.  For example, ever notice how stock 
futures are routinely hammered whenever a manhole cover pops off in Manhattan? 
Their goal is to panic the markets which, by extension, damages the economy. 
Shouldn’t speculators with such a marked impact on the well-being of our 
nation be subject to some sort of scrutiny?   

4) Many argue that hedge funds provide valuable “liquidity”. Indeed, they did 
provide a market for convertible bonds last year which allowed some companies 
access to funds they may not have found elsewhere. Of course, the result was 
“death spiral” convertibles where the short interest of some issuers shares 
exceeded the total float (for example GeneMax and SalesOnline). Bill Gross of 
PIMCO pointed out how hedge funds routinely use credit derivatives to 
influence ratings agencies and drive down the value of bonds and stocks they 
are short. This is really helpful, this liquidity….

In sum, it is irresponsible to leave to their own devices a large pool of 
speculators who profit when markets and the economy is disrupted? Who benefits 
from this benign neglect? Americans saving for their retirement? Workers at a 
firm whose stock is driven down and access to credit restricted? 

 

Thanks very much for your time.

 

Derek Jaskulski
303 Front St
South Portland, ME 04106