SEC Launches ‘Sweep’ Of Alternative Mutual Funds

Aug 13 2014 | 11:16am ET –

The Securities and Exchange Commission is casting a skeptical eye on one of the fastest-growing trends in alternative investments: hedge-fund like mutual funds.

The regulator has begun a “sweep” of the alternative mutual fund industry, The Wall Street Journal reports. For now, the SEC’s mission is information-gathering, rather than enforcement, with plans to examine about 30 firms offering such funds by April. If the agency finds anything, it may choose to examine additional managers.

As with its reviews of hedge-fund managers, the SEC is focusing on liquidity, leverage and governance. In addition to fund managers themselves, the agency has also asked to speak with members of funds’ boards. One request for information included records of all trades, internal liquidity reports, valuation and risk management policies, stress-test results and board minutes.

Alternative mutual funds have exploded in popularity in recent years. Offering hedge fund strategies to retail investors often shut out of the real thing by asset requirements, alternative mutual funds’ assets jumped 63% last year to $258 billion, and investors have added a further $16.8 billion this year.