“Hedge Funds’ Pay Poses Lobby Challenge”
LOS ANGELES (AP) - Another hedge fund lobby group is being formed to ward off heightened regulation, but industry experts acknowledged that attempts to repair fund managers’ image as freewheeling, unregulated risk takers may be futile because large funds are so profitable.
"Obviously what we make is absolutely obscene," Marc Lasry, founder and managing partner of Avenue Capital Group, said at a panel sponsored by the Milken Institute of former Drexel Burnham Lambert junk bond king Michael Milken. "I’m not saying it’s wrong, trust me, but it’s still obscene."
The new group is being organized by Paul Roth, a partner of New York law firm Schulte Roth & Zabel LLP, which represents a number of large hedge funds.Roth argues that the industry’s main lobbying group, the Managed Futures Association, representing 1,300 members, is too diverse to be effective. He wants to see large funds with more than $10 billion under management distinguished in the public and congressional mind from smaller funds.
…….
Some Republicans, who have attracted fewer political contributions from large hedge funds than Democrats, also have proposed taxing as ordinary income the "carry" that hedge fund managers keep from their funds’ investments — generally 20 percent of the return after a certain target level is met. The carry is separate from the management fee that is charged and is now taxed at lower capital gains rates.
A higher tax, however, is unlikely to do much to change the image that hedge fund managers are filthy rich, said Lasry, whose fund manages about $13 billion of investments in distressed debt. "You do have to show you are doing some good" for investors, he said.
Lasry, who sold about 15 percent of his 11-year-old fund to Morgan Stanley last year for more than $250 million, used personal experience to illustrate his point. When he told his father 10 years ago how much he had made in the first year or two of running Avenue, his parent responded that he was hurrying off to a synagogue. If you’re making that much money, his father told him, you must be doing something illegal.
Yet the funds clearly do have their supporters in government. Earlier this year, the President’s Working Group on financial regulation, which include the leaders of the Federal Reserve Board, the SEC and the Commodity Futures Trading Commission, concluded that hedge funds don’t pose a systemic risk to the U.S. financial system. Regulation of the banks and brokerage firms that finance and do business with the funds, they concluded, is sufficient.
continued at http://news.moneycentral.msn.com/ticker/article.aspx?Feed=AP&Date=20070424&ID=6793549&Symbol=BSC
