Calpers Turning the Screw

[rffrydr]

Regulating hedge funds

Published: April 8 2009 09:42 | Last updated: April 8 2009 09:42

As if hedge funds didn’t have enough problems. After a miserable 2008, their protests that they had little to do with the financial crisis are falling on deaf ears. G20 leaders in London last week pledged to regulate large hedge funds for the first time in an attempt to take control of systemic risks.

Big investors are also starting to throw their weight around. Calpers, the US pension fund, last month demanded big changes to the way hedge funds do business. It said it wanted to explore investing in hedge funds through separate managed accounts, to avoid ‘gating’ and other restrictions on withdrawals. It also demanded clawbacks of performance fees paid during good years if a hedge fund suffers steep losses in the next.

With $6bn invested in hedge funds, Calpers has the muscle to back up its tough talk. Some hedge fund managers have already started to come round, among them Man Group in the UK. Stragglers may have little choice but to fall in line; these days, most hedge fund assets come from institutional investors such as Calpers, rather than the secretive wealthy families of old.

As big investors take steps to protect themselves, the industry risks becoming divided between investors with the muscle to make demands, and those left to take what they are given. Similarly, regulators’ obsession with systemically significant funds suggests a further division of the hedge fund industry.

That, in turn, poses two risks. First, that an unregulated second tier of hedge funds continues to operate in the shadows. Second, given the difficulty of monitoring hedge funds’ operations effectively, that regulation could breed a false sense of security concerning the top tier. Regulators need to make clear the limits of their well-meant oversight. Warning: all funds may still seriously damage your wealth.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

An interview with CalPERS new CIO, Joe Dear. Discusses the restructuring of its relationship with hedge fund managers, among other things:

http://globalpensions.com/showPage.html?page=gp_display_feature&tempPageId=859667