Hedge Fund Managers Come Out to the Feds

It was interesting to listen to the testimony provided by several hedge fund managers on Capitol Hill this week. Although I do not agree with all of the support toward more regulation, it was nice to see and hear from some of the more secretive hedge fund managers who do not typically show their faces in public. One thing is clear, the government does not really know anything about the hedge fund industry - there was no rhyme or reason why they chose those managers instead of others. And it was even more clear by the varying testimony that the managers themselves did not know exactly why they were testifying.

Do hedge funds need more regulation and disclosure? Definitely not. A hedge fund is nothing more than a pool of money that is used to make money by any means necessary through a hedged strategy. It really does not make any difference if it is a hedge fund or an individual person that has billions to throw around. I certainly do not want to have to report all of my transactions to the government on a daily, weekly, or monthly basis. And I certainly do not need to tell anybody how much margin I am using and what I am buying or selling.

Regulation is necessary to keep a fair marketplace intact and to ensure that rules are followed. Regulation cannot control greed or risk. You cannot regulate speculation. You cannot regulate irrational exuberance. And you definitely cannot regulate bearishness or short selling. If I want to bet the farm that a company is going down or going up, I am allowed to do so by the rules of the SEC and by the margin limits of my brokerage. Any additional regulation would amount to nothing more than a Sarbanes-Oxley type of thing for the hedge fund industry. And you know what SarOx did for the new issues market.

All regulation will do is make people leave. And this is not the time to get dollars flowing out of the USA. Financiers are smart enough to figure out a legal way around the rules.

If hedge funds had anything to do with the bringing down of the market then perhaps it is good they were around. They did all Americans a favor by exposing the overleveraging of the financial system and have helped weed out the companies who should not survive. In every cycle there must be a boom and a bust. We are definitely in the bust but it is all a set up for the next wave. If the government sets up too many rules, then there will not be another booming wave. Or perhaps it will occur somewhere else.