Renowned short-seller James Chanos, who in 2002 famously drew attention to “overvalued” Enron stock, is preparing a new hedge fund trade association that would represent the industry’s interests inside the Beltway. Chanos has been working on the group, tentatively named Coalition of Private Investment Companies (CPIC), for several months, according to an individual familiar with his plans. Some hedge fund firms have joined the efforts--now in the latter stages of preparation--with an official launch expected in a few months. Chanos, whose role as president of hedge fund firm Kynikos Associates will not be affected, did not return calls.
The group’s initial goal is to provide input on the broader regulatory discussion currently under way in the nation’s capital, on the eve of the Securities and Exchange Commission‘s registration rule that takes effect next week. “The [rule] is going to go into effect--but that is not the end of the road,” said the individual. Specifically, “a number of people at Treasury and at the Fed are rethinking what regulatory policy toward hedge funds should be.” The new association wants to sit down with federal regulators “to help fill the gaps so they have the information they need and in a way that doesn’t force the industry in a hole that doesn’t fit.” As such, the Investment Adviser Act, to which registered hedge fund managers will be subject, “is not really the best statute for dealing with sophisticated entities and systemic risk issues and exotic instruments and things like that,” he said. “Instead of taking an awkward Act, let’s find a better way to do it that is less burdensome.” But the individual stressed that the new group does not seek to overturn the SEC’s nascent rule.
Traditionally, hedge fund lobbying has fallen under the purview of the Managed Funds Association, an organization originally intended to represent managed futures firms. The new group plans to collaborate, not compete, with the MFA, the person added, while conceding that MFA’s efforts on SEC registration did have a role in Chanos’ decision to start the new group. “Jim was a little frustrated by the way the MFA was portraying itself as hard-line and strongly opposed to registration,” he noted. “In Jim’s view they had failed to approach the SEC or the Hill and gain allies in a way that could lead all parties to an accommodation.” The coalition will have a narrower mandate than MFA, however. “The coalition is designed less to lobby but more to be an advocacy and education forum for hedge funds to talk to policy makers and regulators,” he explained. An MFA spokeswoman did not comment by press time.
Additionally, the group hopes to address some common misconceptions about hedge funds, which “are still widely perceived as shadowy, mysterious, dangerous entities.” Here, the new organization will “do some educating so that when issues come up with hedge funds, they aren’t seen as a shadowy menace that needs to be gated off from decent folk.”
Chanos was an up-close witness to the fracas surrounding the SEC’s registration rule. In July 2004, he participated in a Senate Banking Housing & Urban Affairs Committee panel that discussed hedge fund registration (AIN, 7/14). A month prior, he kicked off the MFA Forum 2004 by advocating increased lobbying efforts for the industry (AIN, 6/18).