First it was the fees, than it was the registration, now it’s the regulation. What it really comes down to is bureaucracy creation. That’s what’s going on right now as Congress and the powers- that-be try taming the so-called beast that is the hedge fund industry.
Even the presidential candidates have gotten into the act. One who shall remain nameless is talking about it on the stump, and calling for rules the nameless one says are needed to insure the stability of the financial markets.
The reality of the situation is this:
First, it is becoming more apparent that members of both houses of Congress have no concept whatsoever what hedge funds do, how they operate or what they’re good for, and, second, everybody running for President, make that almost any elected office, is dying to get their hands on the big bucks that hedge fund managers contribute to the political process.
Every day in the paper you read an article how this candidate for President or that candidate for President is having a fundraiser at this hedge fund manager’s house or that hedge fund manager’s house. There’s no question in anybody’s mind that the hedge fund industry contributes a significant amount of capital to the political process. Whether good, bad or indifferent, it’s a fact and it’s here to stay, so the idea that regulation of substance is really going to materialize is just nonsense.
Furthermore, additional regulation is not going to provide any level of security to markets around the world because the markets are already secure. In my opinion, there are few if any who truly believe that the markets are threatened by the hedge funds. The hedge fund industry is a business where people are paid to perform. Managers are paid to make money for investors and as a result they don’t take undue risks or bet the house on trades that are so risky that they could lose it all. Of course, there are situations like Long-Term Capital and Amaranth, where managers made mistakes, very bad mistakes, but they are the exception to the rule.
The hedge fund business is a stay-rich business, not a get-rich business. Sure, managers make money and are paid quite well for delivering on their promises to investors. And as a result they often become quite wealthy. For the most part, though, these people are in the business of preserving wealth; they leave wealth creation to the people who take companies public!
This is the last post before our first HedgeAnswers Afternoon, which is tomorrow in Philadelphia. For those of you coming, I look forward to talking to you and for the rest of you come to the event either in Chicago on July 17 or San Francisco on August 2. Go to www.hedgeanswers.com for more information and to register today!