Wednesday, April 12, 2006
Thorns in the Foliage
Here is a trend that I expect will accelerate:
Financial watchdogs are making life less comfortable for hedge funds
Life looks pretty good in hedge-fund country. The mansions are sprawling;
luxury-car dealerships—Mercedes, BMW, Maserati, Ferrari—sit cheek by jowl; and
there are lots of fancy shops and cafés with faux-French names. In Greenwich,
home to more than a few investment boutiques, even the local library oozes
money: rows of pricey Aeron chairs cushion the posteriors of well-dressed
patrons as they browse the internet on flat-screen monitors.
Nevertheless, these days it is becoming harder for hedge-fund managers to
make money. Those who invest the wealth of rich individuals, family offices and
institutions using fiendishly complicated investment strategies face greater
competition. New funds are set up almost every day: across the world there are
now more than 8,000. More dollars are pursuing the same strategies, reducing
returns for many. The costs of both fund-management talent and office space are
Since February 1st, new rules have added a layer of cost and compliance for
many funds. The Securities and Exchange Commission (SEC) now requires most
hedge-fund managers to register if they have 15 American investors or more. The
idea is to keep a closer eye on those with lots of investors than on those with
a few rich ones, who are presumed to be better able to look after themselves.
The industry's sheer size—it now manages more than $1.5 trillion, according
to HedgeFund Intelligence, a specialized information firm—has prompted
regulators around the world to take a much closer look. Recently, the financial
regulators in Dublin shut down three hedge funds operated by Broadstone Fund
Management, an investment firm. Meanwhile in Britain, where more than
three-quarters of Europe's hedge-fund assets are managed, the Financial Services
Authority (FSA) has been looking into potential conflicts of interest among fund
managers and the unfair treatment of investors.
This trend is here to stay. Yet it may have a silver lining for some Hedge Fund managers.
...However, not all the regulatory attention is unwelcome. The FSA has also said
that it may allow retail investors, not just institutions or rich individuals,
to invest in funds of hedge funds, which spread money across individual funds
using a single investment product.
Call me cynical, but I wonder if the specter of looming regulations is in anyway correlated with political contribution by fund managers in the above graph...nahh!
Posted by Trade Monkey ::
10:30 PM ::
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