Fund of hedge funds will be significantly affected by President Barack Obamas statement calling for banks to be banned from owning, investment in or sponsoring private equity and hedge funds.
Preqin, a provider of data analysis for the alternative investment industry, monitors 19 fund of hedge funds units of major US banking institutions, all of which could be affected by these restrictions.
These funds of funds represent over $180 billion in assets, or approximately 16% of all US capital flowing into hedge funds. In comparison, US banks invest much less directly into hedge funds, representing 0.9% (approximately $10bn) of the total capital.
Tim Friedman, Preqin, said: Although the full implications of Obamas statement remain unclear, the potential disruption that such widespread reform could bring to the alternatives industry is significant, and could affect hundreds of banking institutions in the US investing in alternatives. Furthermore, there would be a knock-on effect for the hundreds of investors in funds and funds of funds managed by these firms. Although it could be argued that banks are serving their own customers, and would therefore be exempt, the situation is currently very unclear, with one possible outcome being a widespread spinning out of alternative assets divisions within banks. Whatever role banks had in the financial crisis, one thing is clear: it was not the banks ownership of or investment in private equity and hedge funds that caused the problems.
Goldman Sachs, Bank of New York Mellon, Credit Suisse and JP Morgan would be those banks most heavily affected by the proposals.
Private equity would also be heavily hit. At present, banks have $50 billion in capital available to spend on new investments.