Hedge funds shy from Bush's Wall St. bailout

WASHINGTON (Reuters) - Hedge funds are unlikely to be among financial institutions clamoring to unload their bad debts under a proposed $700 billion Wall Street bailout plan, the chief of the funds' lobbying group said on Tuesday.

"I think it's unlikely that they would include us and I think it's unlikely that we would ask to be included," said Richard Baker, president of the Managed Funds Association.

In an interview with Reuters, Baker said it was still unclear whether hedge funds are among financial institutions that would be allowed to participate in the massive Bush administration plan now being debated by Congress.

The former Louisiana congressman said one thing is crystal clear to hedge fund managers: "We understand that if you ask for benefits from the government, you generally get regulation, whether you like it or not."

Hedge funds -- investment pools principally used by the rich and large institutional investors such as pension funds -- have fought for years to minimize government intrusion into their affairs, with mixed success.

Treasury Secretary Henry Paulson on Saturday unveiled a proposal requesting authority to purchase up to $700 billion in broken mortgage-backed bonds and other troubled assets. The plan is meant to confront the worst financial crisis to confront the United States since the Great Depression.

Paulson has said explicitly since then that hedge funds would not be eligible to take part in the taxpayer-funded bailout, but lawmakers have been less certain on that point.

Massachusetts Democratic Rep. Barney Frank, a key player in the negotiations, was asked on Monday night whether decisions had been made on letting hedge funds sell assets to Treasury.

He said: "I don't think so, but I'm not sure of the details and we're still working on it." Frank chairs the House of Representatives Financial Services Committee.

The Paulson plan has met fierce criticism on Capitol Hill. Negotiations between administration officials and lawmakers have been going on almost around the clock for days in the face of turmoil in world capital markets.

Baker said, "I have not had any legal opinion given me that really gives me a clear answer on this issue. There's so much uncertainly about who's in and who's out and what assets are covered .... But I would be very surprised if the judgment of the policymakers would" be to include hedge funds.

(Editing by Richard Chang)