Leading hedge fund managers have hit back at calls for tougher regulation of their industry made by Gary Cohn, Goldman Sachs president, in Davos.
In a panel discussion on Wednesday, Mr Cohn warned that greater regulation of banks would push risky activities into the “shadow banking sector” which he said was “less regulated” and “opaque”.
Mr Cohn’s speech has since drawn criticism from some of the hedge fund industry’s most well-known names – including clients of the investment bank – which have interpreted his remarks as an attack on their activities.
“These statements are just false. Hedge funds are regulated. We didn’t cause the financial crisis. We didn’t take bail-out money,” Richard Baker, the president and chief executive of the Managed Funds Association, the industry’s main trade association, told the Financial Times.
“The most recent financial crisis was caused by institutions that didn’t know how to adequately manage risk and were overleveraged. And I worry that if there is another crisis, it will be because the same institutions have failed to learn from the mistakes of the past,” he added.
Goldman did not respond to requests for comment on Mr Cohn’s remarks. Mr Cohn was speaking in a small panel session and his remarks were understood to have been unprepared.
One large hedge fund – a client of Goldman – said Mr Cohn’s comments were “ill-judged and ill-informed”. Other hedge fund managers were less circumspect.
One accused Mr Cohn of behaving “cynically” to try to distract regulatory attention. “Until 18 months ago, Goldman Sachs was the biggest hedge fund in the world,” this person said, referring to the bank’s sizeable proprietary trading activities, which allowed the bank to speculate with its own capital.
New US regulations have forced Goldman to wind down its internal trading operations, leading to a number of traders departing to set up their own funds.
His criticism comes at a sensitive time for the bank, whose prime brokerage business, which handles accounts and trading for hedge funds, is one of its most lucrative and successful operations.
Although some clients of the bank have been angered, few believe that Mr Cohn’s remarks will have a significant impact on broader regulation of the hedge fund industry. Hedge funds have come under fire from politicians in Europe, who passed the Alternative Investment Fund Management Directive to regulate the industry.
In the US, the Securities and Exchange Commission and the Commodity Futures Trading Commission on Tuesday this week passed new rules that will require all US hedge funds managing more than $1 billion to file “detailed” quarterly information on their portfolios, investments and strategies.