America’s largest trade unions have accused hedge funds of falsely claiming to have their support in a misinformation campaign to fight new financial regulations.
The Securities and Exchange Commission proposed a series of new rules in December to increase stock market transparency in the wake of the collapse of Archegos Capital Management.
The plans have already provoked a backlash from hedge funds and a stand-off between investment funds and many of the large companies in which they invest. But the fight escalated last week as the labour movement complained it was being unfairly dragged into the fray.
Brandon Rees, deputy director of corporations and capital markets at the AFL-CIO trade union federation, said labour activists “wanted to put the record straight” after press reports and rumours around Capitol Hill claimed they were also opposed to the rules.
“Activist hedge funds don’t view themselves as being particularly sympathetic parties so they’re seeking strange bedfellows to support them, but they should be honest and forthright in expressing their concerns and not be creating false narratives,” added Rees.
Andy Stern, former president of the Service Employees International Union, said he had been contacted by a group of academics earlier this year who encouraged him to “add my voice” to an alleged chorus of opposition from workers, before he realised the concerns were not accurate.
The Managed Funds Association, which represents hedge funds, declined to comment.
The AFL-CIO and 11 unions wrote to the SEC last week — two months after the initial deadline for comments — to “clear up any misunderstandings” and express their strong support for the regulator’s plans.
The SEC has been pushing to reform swaths of the financial landscape since President Joe Biden named Gary Gensler as its new chair last year.
The first set of proposals, put forward in December, would stop investors from using swaps — derivative products tied to the value of an underlying asset — to secretly build up holdings in public companies without disclosing their positions. Further proposals put forward in February would halve the amount of time investors have to reveal large stock holdings, and make it harder for multiple investors to work together to build large stakes.
Opponents fear the changes would strangle activist investing, create excessive logistical burdens for investors and make it impossible for them to engage in legitimate communication with each other.
Activist funds and their supporters have repeatedly stressed that their actions benefit the broader market and economy by investing on behalf of groups including workers’ pension funds, and holding bad management teams to account. Paul Singer’s Elliott Management argued in a recent letter that activists were “one of the few independent voices in the marketplace to protect shareholder interests and enhance market efficiency”.
Americans for Financial Reform, a left-leaning lobby group, countered that view. “This is the [hedge fund industry’s] go-to argument but people who represent workers and save for them do not agree,” it said.