Hedge funds could gain from Obama plan

LONDON (Reuters) - Hedge funds and private equity could be surprise winners from U.S. President Obama's clampdown on risk-taking by banks, as competition in trading is cut and star managers take their skills elsewhere.

The proposals would stop banks owning or sponsoring a hedge fund or private equity fund, as well as so-called "prop trading", where banks trade on their own account, forcing them to spin-off such operations into stand-alone boutiques.

An exodus of talent from banks, and cut-backs in proprietary trading have boosted the hedge fund industry in recent years, and the trend is likely to accelerate if Obama's plans are implemented in the United States and Europe, commentators say.

Senate negotiators offered changes to the regulatory-overhaul bill that would strengthen part of the language banning proprietary trading at U.S. banks while giving them leeway to invest in private-equity and hedge funds.

Get ready for a slew of private-equity deals in coming months, as buyout firms reportedly are sitting on as much as $500 billion of undeployed capital that they must use or lose.

Investors were sending money to the firms hand over fist during the boom financial markets of 2003-2007. But if private equity firms don’t put the capital to work within three to five years, they must return it to investors.

Some industry heavyweights, including the Carlyle Group, Kohlberg Kravis Roberts and TPG hold more than $10 billion a piece, according to research firm Preqin.

One sector receiving a lot of attention from private equity firms is healthcare, thanks to the steadiness of revenue in that sector.

NEW YORK (Reuters) - Hedge funds pulled in $9.5 billion (£6.22 billion) during the second quarter with nervous investors preferring to send their money to the biggest and best established managers, according to industry tracker Hedge Fund Research Inc on Tuesday.

Hedge fund managers have seen flat returns on average as they have battled a volatile market so far this year, but that hasn't stopped wealthy investors from sinking more cash into the industry. Strategies like global macro and event-driven funds that may insulate investors from stock market swings, have been seen as particularly attractive.

The fund industry's most established firms with more than $5 billion in assets under management, saw $8.8 billion of the total inflows in the second quarter, according to HFRI.

"The hedge fund industry continues to be dominated by investor preference for robust fund infrastructure, encompassing enhanced liquidity and transparency," Ken Heinz, president of HFRI, said in a statement.

Financial speculators have come under renewed fire from anti-poverty campaigners for their bets on food prices, blamed for raising the costs of goods such as coffee and chocolate and threatening the livelihoods of farmers in developing countries.

The World Development Movement (WDM) will issue a damning report today on the growing role of hedge funds and banks in the commodities markets in recent years, during which time cocoa prices have more than doubled, energy prices have soared and coffee has fluctuated dramatically.

The charity's demands for the British financial watchdog to follow the US in cracking down on such speculation comes against a backdrop of cocoa prices jumping to a 33-year high as it emerged that a London hedge fund had snapped up a large part of the world's stock of beans. On Friday, traders say, Armajaro took delivery of 240,100 tonnes of cocoa – the biggest from London's Liffe exchange in 14 years and equal to about 7% of annual global production, according to the Financial Times.