Wednesday, March 14, 2012

Former Rep. Baker Links Hedge Funds and Institutional Investors

There is a growing partnership between the hedge fund community and institutional investors, noted former Rep. Richard Baker, currently CEO of the Managed Funds Association. In remarks at the National Institute on Retirement Security, he noted that 61 percent of all hedge fund assets come from institutional investors such as pensions, endowments, foundations, and charities. . Mr. Baker was a member of the House Financial Services Committee and was Chairman of the Subcommittee on Capital Markets for 12 years. The MFA CEO addressed many of the myths of the hedge fund industry, specifically that hedge funds are highly leveraged and risky investments. He highlighted a recent study that shows hedge funds are leveraged, on average, at only 2.34:1 and noted that on a long-term, aggregate basis, hedge funds have outperformed 10-year US Treasury notes, the S&P 500, and STOXX 600 since the end of 2003. While risk management and strong returns lead many institutional investors to consider hedge fund investments, former Rep. Baker also noted that fund managers often have much of their own capital at risk in the fund, offering a strong incentive for the fund to perform well. “If you don’t do well, the manager is not doing well either,” Baker said. “He or she puts their own capital at risk and either survives and thrives or does not.”

He also discussed the MFA’s advocacy efforts on behalf of the industry, highlighting the increased need to remain active with regulators and policy makers, as more than three-quarters of the Dodd-Frank Act regulations have yet to be finalized. Dodd-Frank is a strong contributor to the industry’s continued evolution, noted Mr. Baker, but the industry has taken it upon itself to embrace transparency. He cited his 2009 testimony before Congress, as CEO of MFA, in support of mandatory registration for hedge fund managers. Moving forward, he observed, it is important for investors to have their voices heard as the new regulatory framework develops.