First it was hedge fund veteran George Soros, who announced that he was returning money to outside investors and, in effect, getting out of the hedge fund business. Then came word that SAC Capital, the hedge fund run by Steve Cohen, had soft-closed his flagship funds, meaning he is retaining his outside investors but is not taking additional new capital.
What's behind this retrenchment among these top hedge fund managers? According to George Mentz, international attorney and wealth management professor, hedge fund managers are reacting to being forced to disclose more information, share that information with competitors and essentially be "over regulated." When you look at it from the fund manager's prospective, you can understand why they might want to shift their business model.
Basically, the new SEC rules, as contained in the Dodd-Frank financial reform act, were designed to protect investors by requiring advisers to hedge funds and other private funds to register with the SEC by March 30, 2012. It will be interesting to see how many other fund managers follow in the footsteps of Soros and Cohen.
A flight of managers could have an enormous impact on hiring in the hedge fund industry. However, Mentz predicts "this could be the best time in history to start a career in financial compliance." He adds that there will being more openings for compliance and administrative positions to deal with the new disclosure rules.
Mentz also points out that until the passage of the Dodd-Frank Act, advisers managing hedge funds were not subjected to very much regulatory oversight. He then adds that "while the concept of Dodd-Frank may be a good idea from a consumer protection point of view, we have to wonder if there will be too many regulators and too little producers."
With hedge funds constrained by the same rules managed mutual funds already have to deal with, hiring managers may be looking for a somewhat different type of candidate to fill risk management positions in this tighter regulated and more transparent environment.