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Obama loves hedge funds


Matthew GoldsteinThe big winner in the Obama administration’s financial regulatory reform package is the beaten-up hedge fund industry.

Hedge funds get a particularly “light touch” when it comes to government oversight in the Obama plan. Essentially, the administration is calling for a reinstatment of a Securities and Exchange Commisison rules that requires managers to register with the agency as investment advisors.  The rule was overturned by the federal courts, but many large hedge funds remained registered with the SEC–even though they weren’t required to do so.

The registration requirement would give the SEC the authority to conduct periodic inspections and require hedge funds to report information on trading positions. But the information reported by the hedge fund would remain confidential and not shared with the general public.

Some in the $1.1 trillion hedge fund industry feared managers might be required to publicly report “short” positions on stocks. But there’s nothing of the sort in the administration’s proposal.

BofA and the fraudster


Ken Lewis spent much of the day on Capitol Hill getting grilled about Bank of America’s acquisition of Merrill Lynch during the heat of the financial crisis. But Lewis may have bigger things to worry about down the road, as his bank’s past dealings with a hedge fund fraudster just won’t go away.

A federal appeal court, in a little-noticed ruling, reinstated an aiding-and-abetting claim filed against BofA by some former investors of Michael Lauer, who master-minded a billon dollar hedge fund fraud. A federal trial court judge in New York had dimissed the case against Bofa, which was the prime broker for Laurer’s $1 billion Lancer funds. But the appeals court, without determining the merits of the allegations, says the investors should be able to press ahead with their claim against the big bank. 

Drowning Hedgies


May was the best month for hedge funds in nine years, with the average fund rising 5.2%, according to Hedge Fund Research. And for the year, HFR’s most broad-based hedge fund index is up 9.43%. 

So everybody back into the pool then? Well, don’t believe the hype.

Sure it’s great news that hedge funds are running in the black, after the average fund dropped 19% last year. But the hard truth is it could take the hedge fund industry a long time to recover from its worst year ever.