June 09, 2011

Lobbyists are working closely with the nation's commodities and securities regulators to shape how the Dodd-Frank Act is implemented. In an interview with Advanced Trading, the head of a global hedge fund lobbying group - who wished to remain anonymous - explains why regulators often work in tandem with lobbyists, why Goldman Sachs really isn't against the Volcker Rule, and what the hedge fund industry is looking to protect as the sweeping finance reform law is phased in.

How would you characterize the lobbying activity around the Volcker Rule?

Hedge Fund Lobbyist: I don't think it's that much more intense than other provisions of Dodd-Frank. Now that may be because my involvement is from the hedge fund perspective, not from a banking perspective. I see the issues from around the Volcker Rule [being] very different than they probably are for a JPMorgan or a Goldman Sachs.

I want to make sure the hedge fund industry doesn't get hurt. There are people who are not sure sometimes about how to put the rules in place. How they're guided to do it may not actually be in the best interest of the legislation and the proposed solution.

What's the biggest concern for hedge funds as the finance reform bill gets implemented?

Hedge Fund Lobbyist: For hedge funds I'm not so worried about the quantitative side - and that is some percentage of assets, some percentage of equity that a bank might own in a hedge fund. That is a marginal issue in our industry. What's more important is the amount of qualitative stuff that's done to support the hedge fund industry, particularly for smaller or startup hedge funds. Things like back office support, helping find investors, helping raise capital, helping put systems in place, working with them on risk management stuff. You name it. All the stuff involving the setting up of a new business called a hedge fund - Wall Street provides a lot of qualitative support.

I want to make sure that the Volcker Rule doesn't put deposits at risk with proprietary trading. That you don't get hedge fund issues unfairly mixed up in that.

How effective has lobbying been historically in shaping regulation?

Hedge Fund Lobbyist: It's clear to me the way the rules get written you can fine-tune, water down, and change the direction of legislation a lot. Or what's happening this time with the Dodd-Frank Act, you can attack the budget. And through the budget you can kill the rule.

Can Goldman Sachs succeed in its bid to weaken the Volcker Rule through its intense lobbying efforts?

Hedge Fund Lobbyist: Yes, but I don't think they want to kill the Volcker Rule. They don't oppose in principal what the Volcker Rule is saying. Remember in principal that Goldman Sachs doesn't want to be a bank. They only became a bank because of the crisis. Hank Paulson told them he'd have to do something drastic unless they became a bank and enable the Fed to do things like give them liquidity. So now Morgan Stanley and Goldman to my understanding - they're not opposed to not being banks anymore.

What other firms are actively trying to shape Dodd-Frank through lobbying?

Hedge Fund Lobbyist: I've been told by a number of people on K Street that JPMorgan is exceptionally active. But that also reflects the CEO. Jamie Dimon is very up to speed on the details of Dodd-Frank. He speaks about it a lot. And it's surprising that they'd be very active. That doesn't mean they're bad. I spent two days at the CFTC a few weeks ago. I met with everyone from Chairman Gary Gensler all the way down to staff members who are writing detailed rules about three different topics and I found people are literally sitting there saying we've got a problem. Help me write rules to fix this problem. It's not us against them.

As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced ...