MFA to fight new hedge fund regulations

NEW YORK (Reuters) - The Managed Funds Association, the biggest U.S. hedge fund lobbying group, would fight any effort to impose new regulations on the $2 trillion industry, favoring a market-based risk mitigation approach, the MFA's new head said on Tuesday.

In his first extensive interview since becoming MFA chief executive in February, former Rep. Richard Baker told Reuters that the group's main job now was to "educate" lawmakers on the benefits of hedge funds.

While he said he anticipates more regulation, he warned that stringent new rules would impair an industry that provides benefits to pension funds and other investors, possibly causing them to move to other jurisdictions.

"Arbitrary restraint would come at a great cost to the American economy," Baker said at the Reuters Hedge Funds and Private Equity Summit in New York. "Anything that impairs our ability to function needs to be carefully thought through."

Baker's comments come at a time when Treasury Secretary Henry Paulson and other U.S. officials are formulating a plan to upgrade financial market regulation amid a nine-month-long credit crisis that has rocked the markets and prompted banks to write off billions of dollars in loans and other securities.

Baker stressed that hedge funds were not behind the subprime mortgage collapse, but that they remain a potential "whipping boy" for some lawmakers and regulators.

"We are still under scrutiny," Baker said. Still, he said "we're just glad to have someone talking about someone else for a while."

Baker, formerly a Louisiana congressman and member of the House Financial Services Committee, said he was the first lawmaker to sponsor a bill requiring hedge fund managers to register as financial advisers. That measure was eventually imposed by the U.S. Securities and Exchange Commission but overturned in federal court.

Baker now says he doesn't think registration should be required, though he supports funds that choose to be registered, as many are.

Baker also said the MFA favors a global "principles-based" approach to hedge fund regulatory oversight, rather than an imposition of new rules governing leverage, trading practices and other matters.

Baker said the group had recently formed an alliance with the Alternative Investment Management Association, a London-based hedge fund industry trade group, to coordinate on industry initiatives.

He also said he recently met with investor Jim Chanos to form an MFA alliance with the Coalition of Private Investment Companies. Chanos formed the rival trade association over a year ago in response to what he said was inadequate industry representation in Washington at a time when the MFA was its primary lobbying group.

"We hope to have an agreement with him," Baker said.

(Reporting by Dane Hamilton; Editing by Braden Reddall)