Competitive Regulators Might Scapegoat Hedge Fund Industry

Institutional investors increasingly are investing in hedge funds and are in a position to demand procedures and policies that protect investor interests, he said. He said that there is no need for additional regulation, which could discourage financial innovation and the formation of new hedge funds, thus ultimately working against investors.

But hedge funds have something of a public image problem, mostly related to their typically secretive mode of operation. That makes them the ideal fall guy. “A few high-profile hedge fund problems have created a negative perception of the industry as a whole,” said Thomas Walek, president of Walek & Associates, a public relations firm with hedge fund clients.

“Ironically, this negative view has in part been created by existing regulations,” Mr. Walek said. “Regulations on the books now inhibit hedge funds from talking about what they do and how they do it and can restrict them from differentiating themselves in a crowded marketplace.”

What is the solution? Mr. Tannenbaum recommends giving regulators plenty of feedback. It is important for the industry at large to comment on proposed laws and regulations, he said. Mr. Tannenbaum was recently named president of the Hedge Fund Association .

Mr. Walek for one is sanguine. He expects the current regulatory review to give fund managers the ability to provide greater disclosure and transparency, thus contributing to a healthy, growing market.

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