Lawmaker backs off hedge fund rules

By Joseph A. Giannone

WASHINGTON (Reuters) - Hedge funds can rest a little easier as U.S. Representative Barney Frank, the House Financial Services Committee's chairman, said he will not pursue legislation to impose federal oversight on these largely unregulated investment pools.

"I don't think you're going to see anything regulatory this year, and maybe never," Frank said, speaking at the Reuters Regulation Summit in Washington.

Frank, a member of Congress since 1981, became the ranking member of the financial services committee after Democrats took over leadership in the November elections. The Massachusetts lawmaker's comments reflect a reversal since summer, when he called for more regulation and helped draft legislation.

In his new role, Frank said he wants to hold a series of hearings to better understand the impact of hedge funds, lightly regulated investment pools that can only accept money from wealthy investors seeking market-beating returns. Hedge funds now manage more than $1.3 trillion in assets.

With that growing clout has come growing concern from some regulators and critics, who worry the collapse of a major fund could roil financial markets.

"I think we're going to have hearings about private equity, derivatives and hedge funds, with no predisposition. They are a significant, new phenomenon effecting the economy that we need to know more about," Frank told Reuters.

Frank said he took some comfort from the fact that the collapse of Amaranth Advisors LLC, a Connecticut hedge fund that last year quickly lost more than $6 billion on bad energy bets, had no negative consequences on the market.

"On the other hand, a fairly high official at the (Federal Reserve) told me we lucked out there," he said.

The neutral statements mark an about face from Frank's previously strong support for hedge fund regulation.

The U.S. Securities and Exchange Commission approved rules last year that required hedge funds to register with the agency, but a court struck down the rules in June.

In July, Frank worked on a bipartisan bill that would impose more oversight of hedge funds, saying "there ought to be some form of regulation."

By September, the House of Representatives passed a bill submitted by Delaware Republican Michael Castle calling for a study of hedge funds. In December, after the elections, Frank said he would not pursue new legislation.

Frank expressed more concern about derivatives and the role of leveraged buyout firms that comprise a growing share of takeovers, fueled by cheap debt and raging equity markets.

"You have a buyout. That might mean more workers are laid of. Is that driving up debt? How is that going to impact things?" Frank said. "What we're going to do is have hearings on this."