Friday, October 03, 2008

To drive a point home

I may have stated this in brief earlier, but let me come back to this. Leading up to the passage of the Paulson bill there's been all this uproar over executive pay, and measures were added to the bill to curtail executive pay in companies getting help from the government. So people have been in an uproar over your Chuck Princes and Stan O'Neals. But they've been getting paid chump change compared to the heros of 2006, hedge fund managers like John Paulson, Steven Cohen, Jim Simons, David Shaw, people who bring home a billion or so in a good year. Or private equity heros like Steven Schwartzman and Henry Kravis. These people haul coin.

So once the shakeout of existing hedge funds gets done -- and lots of trained mid-level hedge fund people are sitting around, all the truly ambitious prop traders and bankers will cut loose and form new hedge funds. The only thing that might stop them is if institutional investors get cold feet from getting burned (horrible mixed metaphor -- I like) in the most recent generation of alternative investments.

In any case, unless the SEC or some other more robust regulator steps up and institutes more rigorous regulation, a new order of unencumbered but well-capitalized hedge funds will emerge. Not that that's all bad, but it's an unintended consequence at best.

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