Connecticut has announced the creation of a special unit inside of its bureau of securities to "oversee" the hedge fund industry. According to Investment News - "[s]idestepping at least two failed attempts this year by Connecticut lawmakers to introduce new rules related to hedge fund oversight, the state's department of banking has created a hedge fund unit to help oversee what is estimated to be among the largest concentrations of hedge funds in the country."
The SEC's failed attempt to regulate hedge funds is undoubtedly behind this move, but we can't help but wonder how the State plans to go about doing anything more than conducting investigations and reviews. No new regulations have been enacted, funds and managers are still not required to register.
While the article derides the state for its efforts, Connecticut may actually have taken a positive step. The state admits that it does not understand hedge funds as well as it could, and is going to correct that lack of information. Once they, and the SEC, do in fact understand hedge funds, they will understand that they have all the tools that they need in their possession to root out, and yes, even prevent, fraud, without additional rules, regulations and the burden of bureaucracy.
