Looks like the Bernie Madoff fiasco may have succeeded where Long-Term Capital Management failed, as hedge fund managers appear ready to accept that regulation is coming to their $1.5 trillion industry. As hedge funds limp into 2009 after sustaining their worst year ever, the talk has turned from "if" regulation should be implemented to "what" and "when" regulation they're likely to see next year.
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According to Bloomberg, suggestions for regulation range from
strengthening whistle-blower programs to imposing capital requirements
similar to those for mutual funds.
One reason the industry, which has managed to ward off tight regulation
for decades, may accept it now is that more oversight could aid it in
overcoming the black eye hedge funds have received this year from
Madoff's Ponzi scheme and the monumental losses many funds racked up as
the bottom fell out of equity and debt markets. The writing was likely
already on the wall in November when Congress called in five of the
world's best known hedge fund managers
for questioning. With powerful
lawmaker Henry Waxman throwing around terms like "significant systemic
risks to our financial system" and bringing up the 15% capital gains
tax rate, hedge funds can probably expect regulatory woes to be added
to their financial troubles in 2009 as well. -
George White
See Bloomberg story
See Dealscape post on hedge funds on Capitol Hill
