For Hedge Funds, Biggest Fear Is More Regulation

Among respondents, 38 percent said that "onerous government regulation" was the biggest threat to the industry, reflecting their anxiety over Washington's heightened attention to hedge funds and other Wall Street firms involved in the financial crisis. Lack of willing investors was a distant second, with 16 percent. Other factors, such as a lack of access to capital and a lack of market transparency, received single-digit percentages.

While 43 percent said there is the "right amount" of regulation now, 37 percent said they favored more regulation, according to the survey, which was commissioned by RSM McGladrey, a financial services consultancy. Eighteen percent favored looser oversight. This was the first time the survey was conducted.

"Do I think there should be more regulation than there was a year ago? Yes. Do I fear it's going to be too much? Yes," Rob Topping of Topping Capital, a Chicago fund manager with about $110 million in assets under management, said in an interview. "What you don't want to do is run the risk of killing the entrepreneurial spirit that made this country great."

Other fund managers, however, said regulation was not a concern.

"The greatest threat is not from Washington. The greatest threat is from a malfunctioning economy," Leon Cooperman, co-founder of Omega Advisors, a $4 billion hedge fund, said in an interview.

Under an Obama administration plan for overhauling financial regulations, hedge funds whose managed assets exceed a "modest" threshold would have to register with the Securities and Exchange Commission. They would also be required to report information that regulators could use to assess risk to the financial system.