Opening Statement of Acting Chairman Sharon Brown-Hruska
Before the CFTC’s CPO and Commodity Pool Roundtable, April 6, 2005
Good Morning and welcome to the CFTC’s CPO and Commodity Pool Industry Roundtable. On behalf of myself and the other Commissioners I want to thank all of our distinguished panelists and guests for participating in today’s Roundtable. I look forward to hearing what our panelists have to say.
In the last 30 years under the CFTC, the CPO and Commodity Pool Industry has become quite large. Today there are approximately 1800 CFTC Registered CPOs who sponsor, operate or advise 3500 commodity pools. These commodity pools hold over $600 billion in net assets. While this is small in comparison to the almost $9 Trillion in mutual funds, it is a significant amount of money – even here in Washington.
While not well known to the general public, CPOs and the commodity pool industry are becoming an important part of the financial services industry. Many of our large commodity pools are actually known to investors as hedge funds. The primary investors in commodity pools/hedge funds today are public pension funds, major university endowments, large institutions and high net worth individuals. Only a small portion of assets under management - $8 billion and less than 60 funds – are offered to the retail investing public.
Over the past few years, hedge funds, or in the vernacular of the futures industry, commodity pools, have generated an increasing amount of interest and fascination on the part of the investing public and regulators. To read the press, at times it seems that this industry operates under more secrecy than the National Security Agency but with the abandon of a bull, or just as often a bear, in a china shop. Certainly much of the commodity pool industry operates has operated outside of the investment sphere of the average investor because of net worth and income restrictions. Others limit information to their own participants in order to protect investment strategies.
As the regulator of commodity pools and futures markets, it is actually the case that we know a great deal about this industry. As will be discussed later, we know a great deal about who is operating in this industry; when trading in the futures markets we know a great deal about the positions they take; through registration and auditing by the National Futures Association, we know a great deal about how these funds invest their money, value their assets and deal with their customers.
I hope that through this roundtable we can clear up some of the mystery and misconceptions that have come to exist with respect to the commodity pools and hedge funds and increase our knowledge of the industry. I believe that the pool industry is an important part of the futures industry, and even the economy generally. As a source of speculative funds, pools contribute to the liquidity of markets and help to eliminate pricing inefficiencies.
Today we will be looking at the size, shape, growth, regulation, and other issues facing the CPO and commodity pool industry. We have an excellent roster of panelists and very full agenda in front of us.
Before turning to the other Commissioners for opening statements, I would like to specifically note ongoing discussions between the CFTC and the SEC regarding an exemption for CFTC registrants from the new SEC’s hedge fund adviser rule. I firmly believe that CFTC registrants who sponsor, operate or advise identified commodity pools should be exempted from the SEC’s new rule. Avoiding duplicative and unnecessary regulation is a priority of the administration and Congress -- it is just common sense that two agencies should not spend taxpayer money doing the same thing. In October of last year, the CFTC requested that the SEC provide a broad exemption for CPOs and CTAs who are already registered with the CFTC. While the SEC did not provide the requested exemption at the time, I have advised Chairman Donaldson that this is something which is very important to the CFTC. The Senior Staff of the SEC and the CFTC have met 2 times this year on the issue – most recently on March 23rd - and have made what appears to be significant progress on a “primarily engaged” test. Additional meetings are scheduled for later this month. I am cautiously optimistic that the CFTC and SEC will be able to announce an agreement later this Spring – if not earlier.
And now I’d like to turn to the other Commissioners for Opening Statements.