Former SEC Chair David Ruder testified to the House Oversight and Government Reform Committee that the SEC should be given the power to register hedge funds advisers and force them to disclose their risks. This testimony was part of the testimony of Congress Examining Hedge Funds. You can read the Testimony of David Ruder (.pdf).
Mr. Ruder states that:
New regulations are needed in order to protect hedge fund investors and in order to monitor hedge fund contributions to systemic risk. These regulatory needs can be accomplished by giving the Securities and Exchange Commission power to register and inspect hedge fund advisers, including the power to require disclosure of activities that might injure investors, power to require hedge fund advisers to disclose hedge fund risk activities, and power to monitor and assess the effectiveness of hedge fund risk management systems.
I disagree with the statement that regulation is needed to protect investors in hedge funds. The exemptions from registration of hedge funds is for those funds and advisers with significant assets and understanding of risks.
As for the systemic risk posed by hedge funds, I remain unconvinced. Mr. Ruder refers back to the Long Term Capital Management in the late 90s. We have not been hearing about hedge funds causing the current crisis. It appears that the investment banks and rating agencies were the parties most at fault. It also seems the lack of regulation in the derivatives markets, especially Credit Default Swaps, and poorly underwritten residential mortgages and mortgage securities were the tools that caused the most damage.