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Hedge fund litigation funding attracts SEC attention

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Private funds, including hedge funds, could be made to report their spending on litigation finance under new rules proposed by the US Securities & Exchange Commission (SEC), according to a report by Bloomberg.

The proposed rule is reported to be part of a broader push to make the activities of hedge funds more open and transparent in a bid to protect investors and monitor systematic risk to the economy. Litigation funding has come onto the SEC’s radar as the sector has grown to a multi-billion dollar market.

DE Shaw & Co and Elliott Management Corp are among the high profile hedge funds involved in litigation financing but under current SEC rules they can avoid making specific disclosures about their activities. Under the proposed rule both they, and firms registered with the Commodity Futures Trading Commission (CFTC), would have to disclose the percentage of their assets committed to litigation finance as of their neat asset value calculations.

None of the disclosures to the SEC or CFTC would be made public.

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