Hedge funds for the middle guy?

Amy Scott Jul 4, 2006


TESS VIGELAND: These days the hedge fund industry is booming. A Price Waterhouse Coopers survey predicts their revenues will surge by 20 percent just in the next three years. Wondering how you can get a piece of the action? Well, in this country you can’t get into a hedge fund unless you have at least a million dollars to invest. A report out of Europe today suggests it might be time to storm those barriers. Marketplace’s Amy Scott has more.

AMY SCOTT: If hedge funds were fireworks, they’d be those missile types mom would never let you touch. The reward can be spectacular — but so can the risk.

That’s why in the United States, only millionaires and institutions can directly invest in hedge funds.

The study released by the European Commission today says “mom” and other regulators should back off. It says investors who have at least $64,000 to play with are sophisticated enough to know what they’re doing.

Unlike traditional investments, hedge funds can make money whether the market is up or down.

University of Pennsylvania law professor David Skeel agrees the strategy shouldn’t be off limits to people who aren’t super rich.

DAVID SKEEL:“I think there’s a pretty good argument that you want to open up the range of possible investments, but to the extent you’re opening them up I think you need to have somebody looking over the managers’ shoulders.”

But Europe’s chief market overseer Charlie McCreevy wants to relax regulation.

Andrew Hilton directs London’s Center for the Study of Financial Innovation. He says today’s report provides fuel for McCreevy’s position, but though McCreevy commissioned the study, a group of banks actually wrote it.

Hilton says convincing EU members like Germany will be an uphill battle.

ANDREW HILTON:“This is a little amuse bouche, this is the starter course to a quite long meal. And if you’re going to change sentiment in continental Europe, it’s going to take more than just, you know, Morgan Stanley and Goldman Sachs talking their own book.”

It doesn’t help that hedge fund scandals keep showing up in the headlines. One recent sample? Former Denver Bronco Steve Atwater and other football players say they lost $20 million to a hedge fund manager who’s now in jail for alleged mail fraud.

In New York, I’m Amy Scott for Marketplace.

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