GAIM USA: Hedge fund industry associations criticised for being timid

23 Jan, 2013

Hedge fund industry associations have been criticised for being too beholden to regulators and their corporate sponsors.

“Industry associations seem more concerned about maintaining good relations with Congress and regulators than actually being aggressive. Industry associations, for example, capitulated to the SEC’s hedge fund registration requirements,” said Mark Calabria, director of financial regulation studies at the Cato Institute, speaking at GAIM USA in Boca Raton, Florida.

Trade associations’ survival is ultimately reliant on membership dues. Many of these dues come from not only from hedge funds but large investment banks, which are sensitive to antagonising regulators.

“When a trade association writes a comment letter to regulators, the first draft is often very good. However, when banks and insurers review it, they make objections to the letter to make it less hostile. Oftentimes, comment letters come out as being very pro-regulation,” highlighted Paul Atkins, a former SEC commissioner and chief executive at Patomak Partners, a Washington DC-based consultancy.

He added many associations were also driven by rivalry, which hindered their work.

However, he acknowledged aggressive behaviour by trade associations towards politicians and regulators could potentially be counterintuitive.  “Aggressive behaviour could result in retaliation. I have heard stories about the Fed speaking to banks’ boards complaining about what their CEOs have said publicly,” he commented.

Several delegates were not convinced, especially given the low standing hedge funds have in the eyes of regulators and politicians alike. “I have heard many times arguments about trade associations being toothless and self-serving. But they have a role to engage with regulators and if they mouth off constantly and shoot from the hip at every opportunity, it will alienate politicians. Dialogue is essential to reaching compromise, particularly in the hedge fund industry which does not tend to operate as a collective unit when lobbying,” said one attendee.

Claims that industry associations were beset by rivalry was also rejected by the Hedge Fund Association. “All of the major trade associations, namely AIMA, MFA and us complement each other’s work and we work closely together. AIMA is focused on Europe and is growing in Asia while the MFA is predominantly US-centric while we work with a lot of small, sub $1 billion managers,” said Mitch Ackles, president of the Hedge Fund Association.

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