Hedging Washington

The hedge funds have finally figured out where the power lies these days. According to an article from the Wall Street Journal, hedge funds have begun getting in on the lobbying action. The WSJ says that might explain why they were barely mentioned in the Obama administration's new regulatory recommendations released last week:

It isn't clear exactly why hedge funds escaped their worst fears. But one factor might have helped: The hedge-fund industry has been spending a lot more time and money in Washington during the past few years.

The administration's plan would have hedge funds register with the SEC and also suggests the Federal Reserve keep an eye on them for systemic risk purposes. Those are some pretty basic requirements, especially versus more stringent regulation that hedge funds feared. According that same WSJ article:

Tougher rules feared by hedge funds aren't in the proposal, such as requiring documentation of all trades or provisions that would force hedge funds to lower fees charged to investors. Such fees often have included a 2% management fee and a 20% cut of the fund's profits.

Yet, other than some short-selling antics, the hedge funds have shouldered virtually none of the blame for the financial crisis. Moreover, their business has not crashed and burned like the larger market. So it could easily be argued that there's no reason the administration's suggestions should have included much hedge fund regulation. As a result, the WSJ's conclusion screams speculation, but the following chart the article includes is somewhat compelling:


Last week, I mentioned that General Electric has decided it is in their best interest to play ball with Uncle Sam. It looks like hedge funds agree -- and with profit as their chief motive, this shouldn't be surprising. As government continues to get bigger, the dividends earned through lobbying will also grow. That's good news for big business, but not such good news for the smaller companies, industries or investors who cannot afford a significant lobbying presence in Washington.