U.S. Seen More Attractive for Hedge Funds as Global Regulation Tightened

Date: Wednesday, May 5, 2010
Author: Bloomberg

The U.S. will remain more attractive for hedge funds and private-equity firms than Europe as regulators globally seek to tighten oversight of alternative- asset managers, said hedge-fund manager Frank Brosens.

While details of the regulatory overhaul are still being worked out, the U.S. proposals are “not a bad direction,” Brosens said today at the Bloomberg Markets Hedge Fund Summit in New York. Europe has a less favorable environment, he said.

“A lot of what’s happening actually makes sense,” said Brosens, a founding partner of Taconic Capital Advisors LLC. “We like New York. The regulatory framework is just better.”

Lawmakers in Washington and Europe are pressing for tighter rules for the financial industry after the collapse of the U.S. housing market triggered the worst economic crisis since the Great Depression. Regulators see the complexity, interconnectedness and leverage of hedge funds as a greater concern for the stability of the financial system than the size of the funds, a report by the International Monetary Fund and the Bank for International Settlements said in November.

European regulators said last year they may seek to restrict hedge funds’ use of debt and limit bonuses, rules that would apply to U.S. managers seeking to market themselves to European investors.

“It’s going to make it quite complicated,” Brosens said. Brosens was a candidate to run the U.S. Treasury office overseeing the government’s $700 billion bank bailout program until he withdrew his name from consideration last March.

‘Self-Confidence’

Blackstone Group LP’s John Studzinski, speaking on the same panel, said while more regulation is needed, it should be “rational” and avoid unintended consequences. The U.S. needs to continue demanding transparency without ceding leadership to overseas financial capitals such as Hong Kong, he said.

“One of the things that’s annoying is that America still doesn’t have enough self-confidence globally,” Studzinski said. “America’s still the biggest economy and this is still the biggest capital market.”

Studzinski runs the advisory business at New York-based Blackstone, the world’s largest private-equity company. Chairman Stephen Schwarzman is looking to Studzinski’s group to increase revenue and profit as the leveraged-buyout business emerges from a two-year slump.

The panel was moderated by Matt Winkler, editor-in-chief of Bloomberg News.