Funds Hub

Money managers under the microscope

Banks’ pain could be hedge funds’ gain

April 21, 2009

The seemingly endless drama of financial regulation has frequently fixed the spotlight on hedge funds, but there could yet be a twist in the tale.

rtr1oo4sAt a breakfast briefing this morning at the City of London’s plush Capital Club, law firm Katten Muchin Rosenman Cornish suggested the beleaguered hedge fund industry could even benefit from tighter rules.

Martin Cornish pointed out that, under whatever new rules finally come in, banks and insurance companies are unlikely to be able to conduct the highly leveraged or high risk trades they had previously carried out.

“Ironically, maybe we’ll see more fund managers setting up (on their own),” he said.

“We may see some of the (banks’) teams spin out and set up. We’ve certainly seen some more people knocking on our door, saying that’s what they’re doing.

“Some people say fundraising may be difficult, but given the markets maybe you don’t need that much leverage, or that much money.”

However, there may be a price, he noted, since more rules could also add to set-up costs for new hedge funds.

Meanwhile, the next act in the regulation drama unfolds next week when the European Commission proposes binding rules on hedge funds and private equity funds.

The draft law had been scheduled for today but suggestions are that there have been frantic last-minute debates between policymakers favouring stringent regulations — which could conceivably go as far as restricting EU investors from buying funds based outside the EU — and those favouring a UK-style model where the manager is regulated.

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