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11:50 AM
Phil Albinus
Phil Albinus
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Fleeing Dodd-Frank, Hedge Funds Follow the Sun

It's not exactly a 'Gone Fishin'' sign but it might as well be. Hedge funds are being lured to foreign lands where the living is easy and so are the trading rules.

After the bailouts of 2008, the CEOs of banks and investment houses had to put out another fire. Namely, calming the storm of outrage over bonuses for traders and executives that allowed the mortgage and credit collapse to happen in the first place. The banks got billions to trade another day and the bonuses - tens of millions in some appalling cases - went to the suits without even a hiccup.

Their reasoning back then? If we don't pay these traders and portfolio managers these stellar bonuses, they'll leave and start their own hedge funds.

Fast forward to today and little has changed. Sure, we see some solid profits on Wall Street (except for Goldman Sachs) but major American corporations are still flush with money. CEOs are still taking home record amounts of cash and bonus season next month should raise some ire in the media and in middle class homes.

But Wall Street has also seen record layoffs and there's very little sign that they will stop. An estimated 200,000 financial services workers have lost their jobs since Bear Stearns imploded over a weekend in March of 2008.

Where are the new hedge finds? Sure a few funds have started - it helps if you have a Goldman Sachs pedigree - but for the most part hedge funds have lost money in late 2011 and no one really expects new hedge funds to pop up in the leafy suburbs of Connecticut, Westchester County or outside of Boston, Massachusetts anytime soon.

Instead, some hedge funds might be going to sunnier climes. As reported in Bloomberg, the tiny sun-drenched island of Malta is wooing hedge fund workers and managers to its Mediterranean shores. And apparently it's not the siren call of great weather and good wine but the chance to operate away from the SEC and rules like Dodd-Frank and the one named after Paul Volker.

As Bloomberg reports:

As of early November, the number of funds located in Malta had grown to more than 500 with 8 billion euros ($10.7 billion) under management from 165 funds with less than 5 billion euros under management in 2006, according to the Malta Financial Services Authority, or MFSA.

While that's not much compared with Luxembourg, which has more than 143 billion euros under management across more than 700 hedge funds and funds of hedge funds, the number of funds in Malta and the amount of their assets are expanding.

This will definitely be a talking point during the GOP race for the White House. With high-speed connectivity that allows traders to operate from almost anywhere, why wouldn't hedge fund managers leave the US to lighter oversight?

Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio
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