Louis Moore Bacon’s recent letter to investors has a huge section about hedge fund regulation.Europe sucks at it, he says, but the US is actually listening to hedge funds, proposing practical solutions and doing an OK job starting the process of regulation.
Bacon’s Moore Capital has just had first hand experience dealing with regulators, who were looking into a Moore trader’s alleged insider trading. After reading bits of his letter, it’s safe to say Bacon didn’t enjoy the interactions.
Some highlights, from Financial News:
- “The US financial authorities are respectful of the many Cassandras in the hedge fund world that decried the lending bubble practices developed through the last decade. They’d like to hear those voices and co-opt their insights and intelligence that was so lacking in the regulatory, supervisory and legislative circles.
- “On the European continent […] the individual states have not and will not require their banks to raise the same levels of capital, write off their bad debts in a timely manner, significantly reduce the leverage and risk taking of their larger super banks, or adopt the same levels of transparency as in the US – with Switzerland being the notable and important exception.”
- “European financial authorities see hedge funds particularly as a threat to their ability to contain prices, information and confidence in their increasingly risky sovereign debt markets.
- “Witness their demonisation of hedge funds in the market even after the Greeks were found to be lying about their deficit data. Instead of listening to the market’s warnings […], the European authorities would prefer to adopt a stance of ‘First Kill All the Canaries in the Mineshafts.'”
- But unfortunately, the US’s and Europe’s regulatory approach is together “confusing and discordant approach”
Basically, he says Europe is demonizing hedge funds and treating them differently (and more unfairly) than banks. But the US is listening to financial leaders and he thinks the disjunction might eventually lead to a hedge fund exodus (which we’ve already seen the beginnings of). Bacon says the potential is there for “a seismic shift for the European alternative asset industry.”
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