Hedge funds come under new government oversight

By MARCY GORDON | June 22, 2011 | 10:44 AM EDT

WASHINGTON (AP) — Hedge funds will face closer scrutiny under rules being approved Wednesday that seek to protect investors from risky trades and prevent another financial crisis.

The rules were mandated under the financial overhaul law passed last year. They require hedge funds and private equity funds to open their books to periodic inspections by the Securities & Exchange Commission. They also force the funds to disclose information about their operations, finances and investors.

Hedge funds are lightly regulated investment pools that collect money from pension funds, endowments and wealthy individuals. They use complex trades to seek big returns. Private equity funds focus on buying and reselling companies.

The SEC is expected to adopt the rules Wednesday. The funds will be required to register by early 2012.