Reform Loophole Lets Soros and Others Make Hedge Funds Family Only Affairs
Thanks to the Dodd-Frank bill, hedge funds will no longer be secretive investment pools for a group of billionaires. Now they will be secretive investment pools for one billionaires' family.
Last week George Soros kicked everyone he wasn't related to out of his Quantum hedge fund. While he claimed it was because he wanted to retire, it was really to avoid telling everyone some of the details of his financial actions. (Don't feel too bad for George. He still has $24.5 billion to play with.) Soros' action follows moves by fellow fattest-cats Stanley Druckenmiller and Carl Icahn to play all in the financial family. (I suspect Steven A. Cohen is giving serious consideration to this. He's already closed his flagship fund to outside investors.)
When Dodd-Frank was being written it included a provision that anyone managing more than $150 million has to register with the SEC as investment advisers. This would of course put all sorts of expensive laundry into the public realm. So a group of people whose assets are managed in what are called a "family office" got together, named themselves the Private Investor Coalition (I can only guess that Private Investor Liberation Front was already taken), and had a little chat with the powers that be.
If you are not familiar with family offices - which are definitely not home offices - there are between 3,000 and 5,000 family offices in the U.S., according to the Family Office Exchange. While not all are members in the exchange, those that are have average assets of about $400 million.
The result of the discussion between the Private Investor Coalition and our elected officials was - to no great surprise - a loophole. Now you still have to register with the SEC if you are managing more than $150 million, unless it all belongs to one family. This is called "tightening a regulation with a vengeance."
To be sure, the new regulations are very strict about who is and isn't considered family. The funds can manage money only for those related by blood or marriage. (This undoubtedly means the Federal Defense of Marriage Act definition of marriage - which means the bill's co-author Rep. Barney Frank (D-Do I Have To Tell You?) and his partner don't get to commingle their finances in this way.)
Just what we needed - one more thing to spur the consolidation of wealth.
As is always the case with regulations, it is the poor who are going to suffer the most because the rich won't be able to help them. Just ask Charles Lowenhaupt, chief executive of Lowenhaupt Global Advisers. He told the Financial Times:
If you want to take care of an old nursemaid or take care of an old friend or a loyal employee, you can't do it in the family office any more.It is always good to know that the needs of the downtrodden are uppermost in the minds of today's wealthiest families. We are so unworthy.
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