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The House and Senate Conference Committee on Friday finished reconciling the two versions of the financial reform bill. Over the next week and a half we are going to hear more about the details of the bill and how the financial landscape will change in the coming months and years. In this article, we are going to briefly detail some of the major items that are going to affect the investment management industry and hedge funds more specifically.
Laurence Fletcher, Reuters, June 25, 2010
One of this year's worst performing hedge funds has axed its manager after big losses and a breach of internal rules, as the industry struggles to reproduce last year's bumper returns in volatile markets.
Switzerland-based investment firm SwissDirekt said it took chief trader Willem Van der Vorm off its High Risk fund at the end of April after the portfolio, which made money last year but plummeted 82 percent in 2008, lost around 9 percent in the first four months of this year.
Ben Moshinsky, Bloomberg, June 24, 2010
The European Union may delay a final vote on rules to regulate managers of hedge funds and private equity firms until September after the bloc’s Parliament and national governments failed to reach an agreement, according to a European Commission official with knowledge of the negotiations.
Lawmakers, national governments and the commission still need to strike a deal on how much information must be disclosed by private-equity firms, on marketing rules and so-called passports to operate throughout the 27-nation region, said the official, who declined to be identified because the discussions are confidential.
“We want to get a dynamic agreement which is as consensual as possible and robust at a technical level,” Michel Barnier, EU financial services commissioner, said in a statement today. “The commission is trying to bring both sides closer together.”
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Hedge Fund Regulations Stall in Europe
Canaries are small. Coal mines are big. Finding one in the other is never easy.
There is little debate these days, though, that the implosion in the summer of 2007 of two Bear Stearns hedge funds — run by two bankers, Ralph Cioffi (Left) and Matthew Tannin (Right) — was the first sign that significant trouble was brewing in the market for subprime-mortgage-related securities and for the Wall Street firms that manufactured and sold them. Cioffi and Tannin invested heavily in these complex and squirrelly securities — despite suggesting repeatedly to investors they had not — and for 40 months rewarded those investors with positive returns. But these securities were losing value rapidly by 2007 as homeowners nationwide began defaulting on the underlying mortgages — many of which should never have been issued in the first place — that made up the securities that the fund bought.
Banks and hedge funds could face up to $20 billion in fees in the next five years to pay for an overhaul of Wall Street, a key lawmaker said Wednesday. Rep. Barney Frank (D-Mass.) told reporters that large banks and hedge funds could face a fee of, "$3 to $4 billion a year for four to five years." That would range from $12 billion on the low end to $20 billion on the high end. Lawmakers have yet to release the details of the fee provision. Frank said the assessment would help cover the cost of a 2,000-page effort to remake financial regulations. He said the costs of the overall bill would be significantly less than $30 billion and that several of the bill's provisions would also help cover the cost.
Hewitt Associates, a consulting and outsourcing company, says hedge funds should no longer be seen as just an alternative asset class and urges pension funds to consider long/short equity managers as part of their overall equity allocation. Guy Saintfiet, senior hedge fund researcher at Hewitt Associates, says: “We have been a strong advocate of the use of hedge funds in pension fund portfolios for a number of years and have recently seen increased demand for hedge funds from our clients. We believe that the step to include long/short equity is a natural progression from, and complement to, unconstrained active equity management. Hedge funds have an extra degree of freedom to use shorts which can add tremendous value, especially in volatile and bear markets.”
DealBook, June 24, 2010
European lawmakers and diplomats are engaged in a stand-off over rules to tighten regulation of hedge funds, Reuters reported.
The European Parliament and the European Council, which represents the union’s member governments, have been unable to reach a compromise on a so-called passport provision, which would allow European financial services providers to treat the the 27-country trade bloc as a single market.
The provision, included in legislation recently passed by the European Parliament, would regulate hedge funds with money held in accounts outside the European Union differently from hedge funds with money inside the trade bloc.
Related article:
How European rules would curb hedge funds
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