Dubious Hedge Fund Closing Theories with CNBC's John Carney

Oy vey. A piece by CNBC Senior Editor John Carney in The Christian Science Monitor manages to make the absurd argument that regulation is forcing hedge funds to operate in a manner that increases systemic risk. The suggestion is that there is a mad dash to dump outside investors to avoid regulatory oversight by the SEC.

Does bad journalism rife with political propaganda never cease?

Based on a sample of three large hedge funds closing to outside investors (non family), Carney manufactures a trend and  leaps to conclusions that are not justified by fact.

Years of concern about giant pools of investment capital that were said to be under-regulated and under-taxed concluded in Dodd-Frank’s hedge fund regulation requirements and gave rise to new plans to end capital gains treatment for the profits of hedge fund managers.

But instead of kneeling down before the regulators and the tax collectors, some of the largest hedge funds are avoiding the regulation by shutting themselves off to outside investors

First, we had Stanley Druckenmiller who shuttered his $12 billion Duquesne Capital Management hedge fund just a month after the passage of Dodd-Frank. Druckenmiller cited his inability to meet his own performance expectations and the personal toll of working as a fund manager, rather than Dodd-Frank. But between 30 percent and 40 percent of the funds assets belonged to Druckenmiller or his associates, and he continues to manage that money. The fund didn’t shut down so much as go private—and escape the grasp of regulators.

(Christian Science Monitor)

In the case of all three of the funds--run by an 80 plus year old Soros, an aging Carl Ichan and a retiring Drukenmiller--he clearly ignores the stated reasons given to their investor,s in order to go with a manufactured reason off the top of his ideological head.

The regulation in question requires that hedge funds with assets over $100 million register with the SEC, unless it's personal money being managed. In a time when the number of new hedge funds is still proliferating, and where nearly every major fund depends on money from outside investors save for a few highly profitable and long running funds, it's ridiculous to assert that legislation is having any discernible impact at all. (We won't even count the thousands of funds that voluntarily already register).

But what we are seeing frequently in the business press is journalists with an opinion or ideology constructing thought pieces to fit with their.

Carney goes on to suggest that this is a method of closing to outside money is in response to a theoretical possibility that Obama might end the carried interest exemption, where a manager's portion of capital gains from the funds of others is taxed at capital gains rate instead of as income. Under this logic, a manager would give up all the income from management fees and capital gains on vast portions of money in the billions, in order to avoid paying slightly more taxes.

It's the argument here from people who say,"Well if my income doubled I would have all those extra taxes to pay and that would be awful." Uhm, yea, but bottom dollar, more money in your pocket right? Right?

Nobody is going to shut down a hedge fund or turn away investors to avoid regulation or paying more in taxes.