SEC to examine alternative funds
The U.S. Securities and Commission (SEC) is examining alternative mutual funds that use strategies from hedge funds.
The funds are popular to both investment advisers and the public. Net new inflows to alternative funds were $27.8 billion the first six months of 2014, according to Strategic Insight. That’s nearly half the total stock-fund inflows the same period.
Norm Champ, the SEC’s director of Investment Management, talked extensively about the SEC’s concerns in a June 30 speech to the Private Equity Forum in New York. His concerns:
- Valuations. The SEC always wants to make sure funds are priced accurately, even if they hold assets that are hard to value.
- Liquidity: Funds have to be able to meet redemptions promptly, even in tough markets.
- Leverage: Some funds use futures and options to turbocharge returns, which can lead to outsized losses and gains. One alt fund, Direxion Daily Junior Gold Miners Index Bear 3X shares, is down 84.36% this year.
- Disclosure. The SEC wants to make sure that funds’ disclosure documents are adequate.
Source: Usatoday
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