Institutional Investor's Alpha Magazine - April 2008 - (Page 68)

Washington change in presidential administration. But by 2003, the SEC had taken up the mantle, and by the following year it was clear that the agency was going to ask for some form of hedge fund registration, and which would enable it to inspect their books (the SEC eventually imposed registration, but it was later successfully challenged in court). MFA members were bitterly divided over how to respond and fell into two schools of thought. “One was, we have got to engage in Washington, because resisting it at all costs is just going to put a bigger target on our backs,” says one MFA board member. “Other people didn’t want to register at all because they saw registration as a slippery slope.” The ﬁrst group was made up mostly of young managers; the second, of older members. The old guard — ﬁrms like Tudor and Moore — won the battle over hedge fund registration but may have lost the war. Their scorched-earth policy created an extremely negative image of the hedge fund industry in the minds of many on Capitol Hill. “Hedge funds blundered very badly in Washington over registration,” says Damon Silvers, associate general counsel for the AFL-CIO, which represents 10.5 million union members. “The types of requirements the SEC was looking to put in place were pretty modest ones.” Some within the industry had already seen, or were beginning to see, that their approach to Washington wasn’t working. Kenneth Brody, co-founder of $5 billion New York–based activist hedge fund Taconic Capital Advisors, in a move that was heretical to the ofﬁcial MFA position, quietly suggested to legislators that hedge funds should register with the SEC so long as all asset management companies — real estate investment trusts, venture capital funds, private equity groups and so on — were made to do so as well. Chanos had also begun talking to people at the SEC and in Congress about the possibility of some sort of regulatory compromise. “Jim’s feeling was that we should be able to come to an agreement on the reasonable requests, such as providing information about names and business addresses,” says lobbyist Lowenthal. But the MFA wouldn’t concede even that much. “I was beginning to wonder if the industry needed another voice,” Chanos says. At the end of 2004, he founded the Coalition of Private Investment Cos., with Lowenthal as its lobbyist, and began signing up likeminded managers. Although Chanos won’t reveal the names of its members, he says the group today represents about $100 billion in assets. BUT IN THE SAME WAY THAT THE INDUSTRY was failing to reach out to lawmakers, Washington was making little effort to reach out to hedge funds. This was especially apparent during the 2006 debate over pension reform. Part of the Pension Protection Act of 2006 proposed broadening the capabilities of hedge funds to manage pension assets — corporate and public — without subjecting them to ERISA, which prohibits self-dealing. Unions fought the change, but there was very little noise coming from hedge funds themselves, and very little dialogue between lawmakers and hedge funds. Schumer, as the senior senator from New York and a member of the Senate Finance and Banking Committees, realized that an important part of his constituency was absent from the debate. The senator, already friendly with some in the industry, had his staff invite several wellknown hedge fund managers to a dinner in New York. The event, organized by the general counsel of SAC Capital, among others, gave Schumer a chance to dine with the “Hedge Fund Titans.” It was held in January 2007 at Bottega del Vino, an Upper East Side Italian restaurant known for its wine bar. The Schumer camp — listening to the 20 or so managers in attendance, including such luminaries as Daniel Och, Paul Tudor Jones, Stanley Druckenmiller and Eric Mindich — quickly realized that the industry didn’t speak with one mind. As an early and inﬂuential MFA member, Jones had been a supporter of the group’s avoidance of confrontation. In contrast, Och, the founder of New York’s Och-Ziff Capital Management Group, had worked behind the scenes for more engagement. But Schumer and his entourage had a message too. It was the same one Lowenthal had preached four years The Money Trail Hedge funds are spreading their wealth. Employees at the following 20 ﬁrms have given the most to presidential candidates for the 2008 election cycle. Democrats are favored. HEDGE FUND MANAGER SAC Capital Partners Fortress Investment Group Elliott Management Citadel Investment Group Farallon Capital Management AQR Capital Management D.E. Shaw & Co. Taconic Capital Advisors Renaissance Technologies Oaktree Capital Management Avenue Capital Group Bridgewater Associates Highbridge Capital Management Cerberus Capital Management York Capital Management Tudor Investment Moore Capital Management Perry Capital Silver Point Capital Kynikos Associates All 20 ﬁrms Total contributions* $ 352,250 319,850 235,500 224,655 154,300 150,000 135,415 109,950 106,800 98,400 90,150 89,100 85,850 81,350 79,000 70,150 63,000 60,450 58,750 57,100 2,622,020 Democrat $ 332,350 271,350 4,600 211,000 145,450 76,150 115,215 103,050 96,850 65,900 90,150 6,900 50,750 11,500 71,250 35,400 27,800 50,750 25,250 50,200 1,841,865 Republican $ 19,900 48,500 230,900 13,655 8,850 73,850 20,200 6,900 9,950 32,500 0 82,200 35,100 69,850 7,750 34,750 35,200 9,700 33,500 6,900 780,155 * Contributions from January 1, 2007, through February 29, 2008. Source: Center for Responsive Politics. 68 • INSTITUTIONAL INVESTOR’S ALPHA • APRIL 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - April 2008

Institutional Investor's Alpha Magazine - April 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Here to Eternity The Good Guys: Voice of Hope Cover Story: The Kings of Cash Where the Money Is Into the Light Interview: Proceeding with Caution Strategies: A Convenient Truth Alpha Bytes: Village Voice Unhedged: Commentary: No Time for Complacency

Institutional Investor's Alpha Magazine - April 2008

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