Thursday, September 27, 2007

Hedge Fund - Thou Shalt Not Steal

In a marvellous 'slight of hand', worthy of the best magicians, the US government has put together proposals that hedge fund investors and managers should regulate themselves.

Amid calls from the German Chancellor Angela Merkel, President Sarkozy of France and other politicians urging for more transparency and better policing of the financial markets, the US has set up The 'President's Working Group on Financial Markets'. Its job is to develop 'best practice' guidelines for investors and managers who run the funds. This is against a back drop of saying earlier this year that regulations were 'sufficient' to prevent funds from 'threatening' the financial system.

The words 'Poacher' and 'Game keeper' come to mind.

Don't get me wrong, I rabbit and rant about regulatory interference all the time so I am in favour of self regulation. The idea, however, that hedge funds will all adhere to 'club rules' is a little far fetched. Who, for example, would police this system? Would we have Man group (the biggest dogs in the yard) sending boot boys around to your office if you did not adhere to the best practices? It all seems a bit of a waste of money to me. I wonder how much it cost to put a 'Presidents Working Group' together?

A second group is also coming up with some ideas on what type of 'due diligence' those investing in hedge funds should undertake as well as the kind of information they should receive.

Yes, you did read that correctly, and no I am not making it up.

With all the rules on who can and can't invest in hedge funds, is it really necessary to put together a group that will tell investors what they should be looking for as far as due diligence in hedge funds? I would respectfully suggest, that if you do not know then no matter how much money you have you should not be investing in hedge funds..

But lets play the game for the moment. What would be the Ten Commandments that this US group could come up with?

First the investors.

1. Thou shalt not invest in a fund if you are not rich beyond the dreams of Croesus.

2. Thou shalt not invest in a fund where the manager is a crook.

3. Thou shalt not invest in a fund that has naughty practices when it comes to shorting shares and bullying management.

4. Thous shalt not invest in a fund that is not based in the US and subject to US tax laws because the rest of the world does not really know what they are doing and we are the bosses of you.

5. Thou shall invest in a fund where the fund manager makes fat donations to campaign contributions (please read subsection 1)

Rule 5. Subsection 1. Thou shall redeem your funds from the fund invested in Rule 5 if the fund manager has backed the losing candidate and thou shalt re-invest those funds in a fund manager that backed the winner.

6. Thou shalt not covert another funds profits.

7. Thou shalt not worship false hedge fund gods. While we appreciate there are people in Europland, Switzerstan and the United States of the Carribean, we feel it is better that you stick with the USA, where all things are good and saintly.

8. Thou shalt not invest a fund if the fund manager does not send you monthly statements detailing every investment bought and sold where the NAV of the remaining holdings has been passed through a computerised modelling systems which calculates the liquidity of the market and the haircut price of any illiquid investments.

9. Thou shalt not invest in a fund where the managers name ends in 'ov', 'ziz', 'fif' or one with no vowels in it.

10. Thou shalt not sue the SEC.

And the Hedge Fund Managers, what will they come up with?

1. Thou shalt not get caught

2 - 10. See rule 1.

A little bit of fun, but the situation is one of spin. The government does not want to upset hedge fund managers or private equity firms but does want to be seen to be 'concerned' about the situation so they just set up a quango to talk about it while the heat dies down.

A political manoeuvre of the highest quality.


Anonymous said...

I know that recently a realy big hedge fund went belly up, man talk about loosing your money in one swift transaction,.

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