Senator Grassley reminds us of the farmer who gets off the train at Grand Central, steps outside, kicks the pavement, and announces to his wife, “No wonder they built a city here – ground’s too hard to farm anyhow.” Fresh from his probe of New York’s largest private employer, New York-Presbyterian Hospital,* Mr. Grassley is now targeting another strength of this city’s economy, hedge funds. A Republican of Iowa, Mr. Grassley is no longer chairman of the Finance Committee. But while his effort in respect of the hospital was merely an oversight probe, in respect of the hedge funds he this week introduced actual legislation, the Hedge Fund Registration Act of 2007. It should be named the Move Your Fund To London Incentive Act of 2007.

Mr. Grassley’s bill would require any investment adviser with more than $50 million under management or at least 15 clients or 15 investors to register with the Securities and Exchange Commission. About this legislation there are several points to be made. The first is that if registration is to be required, better it be by a decision of the Congress than by the SEC’s penchant for legislation-by-regulation. This is a point on which the funds won a victory in 2006 before the riders of the District of Columbia Circuit of the United States Court of Appeals, which overturned an SEC administrative rule that required registration of hedge funds.

The second is despite some complaints by the hedge fund industry, registration itself is not particularly onerous in and of itself, and most of the funds are already registered. But it does put the funds on the slippery slope of government regulation. The third is that even if registration isn’t particularly onerous, it’s probably unnecessary. The hedge fund industry has been around for a while, and while there have been some spectacular failures — Amaranth, Long Term Capital — the failures have actually been few and far between. Few institutions or individuals have all of their assets in a single hedge fund, and few non-qualified investors, meaning non-rich individuals, invest in hedge funds at all.

In any event, there’s something a little bit weird about Mr. Grassley bouncing around the Senate trying to regulate hedge funds. It would be like Senator Schumer passing devoting his senate career to passing regulations on how to milk cows, though at least Mr. Schumer could say there are some cows in his state, if not his neighborhood. There aren’t many hedge funds in Iowa, which must be why Mr. Grassley feels so emboldened in his campaign against the hedge funds. If the funds were based in Des Moines instead of in New York and Greenwich, Mr. Grassley would probably be trying to subsidize them like ethanol producers instead of imposing new regulatory burdens on an industry that has helped to enrich America and our city.

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* See our editorial of May 26, 2005, “Grassley and the Hospitals,” available at http://www.nysun.com/article/14465.