WASHINGTON -(Dow Jones)- Hedge funds may be close to victory in an effort to avoid paying some $14 billion that lawmakers had hoped to levy on them to help pay for a massive financial overhaul measure.
Senate Banking Committee Chairman Christopher Dodd (D., Conn.) on Tuesday said hedge funds wouldn't be required to pay under a new money-raising formulation being discussed among lawmakers negotiating the bill.
Those on the conference committee of Senate and House members hammering out the final version of the financial bill were forced to take another look at the new industry "tax"--tucked into the final version of the bill in the wee hours of the morning last week--after a key Republican who had previously supported the bill threatened to vote against it.
Sen. Scott Brown (R., Mass.) said Tuesday that he would oppose the bill if it included the $19 billion in fees.
Hedge fund executives said the new fees unfairly singled out hedge funds and other firms that actively manage financial portfolios.
The financial-overhaul conference report now requires regulators raise some $19 billion over five years by charging financial institutions and hedge funds risk-based fees.
Lawmakers are looking at reopening the bill to change that provision.
Without a change, about 20 to 30 hedge-fund firms would be required to pay, according to an analysis from congressional Republicans. Hedge-fund executives said the fees on their industry, excluding the money received from banks, could top $14 billion.
"The inclusion of hedge funds in this financial tax suggests that our industry has been singled out for more onerous treatment," said Todd Groome, chairman of Alternative Investment Management Association, a global representative of hedge funds.
"We'll definitely push against it," Groome had told Dow Jones Newswires Monday.
Groome didn't have to wait long. By Tuesday, conferees were scrambling to find other ways to pay for the $19 billion shortfall in the bill without imposing anything that looks like a tax.
Hedge-fund representatives said their industry has suffered a bad name in the public and among policymakers since the financial meltdown. They are hoping new registration requirements in the financial bill will make their activities more transparent.
The Securities and Exchange Commission will be charged with monitoring hedge funds after the financial bill passes, a move the industry supports.
The first order of business for the SEC will be to ensure that hedge funds aren't defrauding their customers, that they have the money they say they have, according to people familiar with the matter. Eventually, the SEC will be able to collect data on hedge-fund activities, which will help regulators charged with monitoring the overall financial sector for risky behavior.
"Hopefully it'll help to eliminate some misperceptions, which sometimes are more political than reality," Groome said. "With hedge funds providing information, there are no dark corners anymore."
Hedge funds have helped lawmakers craft the financial-overhaul bill for more than a year, seeing its new registration requirements as a benefit to attracting large institutional investors such as pension funds.
Copyright 2009 Dow Jones Newswires
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