NEW YORK, Aug. 6 (Reuters) - The scandalous implosion of the Bayou Group hedge fund in 2005 gave fodder to legions of critics demanding reform in the powerful but secretive industry.
The industry managed to beat back most measures, including a move backed by U.S. securities regulators to force firms to register as investment advisers, but one group is looking to protect the business’s image.
The New York Hedge Fund Roundtable is seeking to establish professional standards to self-police the lucrative industry, both to prevent future scandals and avert the imposition of new laws on the $2 trillion industry.
“It’s a great industry. We don’t want to see it blown up because of a few bad guys,” said Stanley Goldstein, founder of the ad hoc group, which meets regularly to discuss industry issues. “The industry has a public relations problem. It’s hard to find good press for hedge funds.”
Goldstein, 73, the retired founder of accounting firm Goldstein Golub Kessler & Co and of several hedge funds, said professional associations -- like the New York State Society of Certified Public Accountants -- can exert powerful peer pressure on those who work in an industry.
Many hedge fund managers belong to self-policing financial industry groups, but none of those groups provide the imprimatur of the NYSSCPA, the American Institute of Architects or the American Medical Association.
“Peer pressure will make a big difference,” said Goldstein. He said that when he started out as an accountant in the early 1960s, bribing Internal Revenue Service agents was common practice among smaller accounting firms seeking to make tax problems go away.
That practice was virtually halted by federal prosecutions and self-policing moves by groups like the NYSSCPA, which developed and imposed professional and educational standards for their members, he said.
“They said, ‘If you don’t follow our rules, you won’t get on a committee,'” said Goldstein. And being on a professional society committee, he said, “is a powerful credential,” something of a Good Housekeeping seal that clients recognize and value.
Some observers say it may be just the right time for a professional society for hedge fund managers: Hedge funds have grown from a cottage industry three decades ago to one estimated to hold $2 trillion in 12,000 funds today.
“Certainly, a self-regulatory organization would be a wonderful idea for the industry,” said Leon Metzger, a veteran senior hedge fund industry executive who now teaches hedge fund strategies at Yale, Cornell and New York University. “It might forestall regulatory oversight by a federal agency (the Securities and Exchange Commission) that is already stretched to its limits.”
Goldstein said the New York Hedge Fund Roundtable is looking to develop such an organization. It could be up and running sometime next year, he said.
The Roundtable was formed five years ago and now has nearly 1,000 members. Its website is at www.newyorkhedgefundroundtable.org. (Editing by John Wallace) (Reuters email: email@example.com. 646 223 6161)