Skip to main content

Hedge funds: regulations and redemptions

I have to tell you: I'm kind of surprised that last week's news of the Congressional hearings on hedge funds and the financial markets didn't get more attention in the blogosphere and the non-business press.

It sounds a bit funny to say that, as the hearings did secure front page attention from several newspapers (that I happened to see) the following day. This coverage was probably due, in no small part, to the snapshot images of five highly successful and media-shy hedge fund managers being brought before a congressional committee and a bevy of photographers.

Despite this momentous occassion, the hearings did not exactly attract a whirlwind of coverage from bloggers outside the financial sphere, although several business and investing blogs were live-blogging the event. It could be that the weight of this event was lost on bloggers less familiar with the hedge fund industry and the spectacle surrounding some of its prime players.

Still, I have to think that last week's hearings marked an important shift in the hedge fund industry. The push for increased regulation of hedge funds seems to gathering steam here.

In fact, many of the hedge fund managers assembled before the House committee said they supported increased regulations and reporting guidelines, so long as these requirements did not lead to public disclosure of hedge fund positions.

This is an important point, as a hedge fund manager's strategy and the details of his positions may form the core of his business edge, a "secret sauce" not to be divulged to competitors. So I have to wonder: can government regulators be trusted to keep these secrets?

There's also the question of how additional regulation might affect future competition within the hedge fund industry.

Right now, investor redemptions and an ongoing shake-out of existing firms are the immediate concerns for most hedge funds. But what will happen to future entrants in the hedge fund industry if new regulatory demands arise?

Increased regulatory burdens and compliance costs may prevent smaller funds from entering the business, thereby limiting the future competition for larger, more entrenched funds. The costs of regulatory compliance would fall especially hard on small new firms with limited resources. Such costs would effectively serve as a barrier to entry for new funds, while limiting the field for investors and financial entrepreneurs.

This is a crucial point to consider, as even the largest and most successful firms often start life as small and nimble business ventures operating out of a spare room or garage. Just ask Steve Jobs, Henry Ford, or Ken Griffin.

Related articles and posts:

1. Hedge fund hearings: video and notes - Finance Trends Matter.

2. Interview with hearings witness Houman Shadab - All About Alpha.

3. Get Over the Hedge - Forbes.

4. Signs of hope for the hedge fund industry - All About Alpha.

Popular posts from this blog

Jesse Livermore: How to Trade in Stocks (1940 Ed. E-book)

If you've been around markets for any length of time, you've probably heard of 20th century supertrader, Jesse Livermore . Today we're highlighting his rare 1940 work, How to Trade in Stocks (ebook, pdf). But first, a brief overview of Livermore's life and trading career (bio from Jesse Livermore's Wikipedia entry). "During his lifetime, Livermore gained and lost several multi-million dollar fortunes. Most notably, he was worth $3 million and $100 million after the 1907 and 1929 market crashes, respectively. He subsequently lost both fortunes. Apart from his success as a securities speculator, Livermore left traders a working philosophy for trading securities that emphasizes increasing the size of one's position as it goes in the right direction and cutting losses quickly. Ironically, Livermore sometimes did not follow his rules strictly. He claimed that lack of adherence to his own rules was the main reason for his losses after making his 1907 and

New! Finance Trends now at FinanceTrendsLetter.com

Update for our readers: Finance Trends has a new URL!  Please bookmark our new web address at Financetrendsletter.com Readers sticking with RSS updates should point your feed readers to our new Finance Trends feedburner .   Thank you to all of our loyal readers who have been with us since the early days. Exciting stuff to come in the weeks ahead! As a quick reminder, you can subscribe to our free email list to receive the Finance Trends Newsletter . You'll receive email updates about once every 4-8 weeks (about 2-3 times per quarter).  Stay up to date with our real-time insights and updates on Twitter .

Moneyball: How the Red Sox Win Championships

Welcome, readers . T o get the first look at brand new posts (like the following piece) and to receive our exclusive email list updates, please subscribe to the Finance Trends Newsletter .   The Boston Red Sox won their fourth World Series title of t he 21st century this we ek. Having won their first Se ries in 86 years back in 200 4, the last decade-plus has marked a very strong return to form for one of baseball's oldest big league clubs. So how did they do it? Quick background: in late 2002, team own er and hedge fund manager, John W. Henry (with his partners ) bought the Boston Red Sox and its historic Fenway Park for a reported sum of $ 695 million. Henry and Co. quickly set out to find their ideal General Manager (GM) to help turn around their newly acquired, ailing ship. This brings us to one of my fav orite scenes from the 2011 film , Moneyball , in which John W. Henry (played by Ar liss Howard) attempts to woo Oakland A's GM Billy Beane (Brad Pi