The hedge fund market told everyone for years what great value they brought to the market. They brought billions into the market, sure, but it was other peoples money and highly leveraged. Hedge funds also took advantage of massive loopholes in the tax code so that the both the hedge fund business and the hedge fund money managers had an easy ride. The bulk of the annual compensation for hedge fund managers is taxed at 15% - yes, 15% - which I'm guessing is lower than most others in America pay. Through their lobbyists such as Gorver Norquist, they have managed to skirt taxes because of the fantastic value they bring to the system. That value has never been obvious to me, especially since it's so highly leveraged. Compete with the same rules, regulations, tax code as everyone else and then let's talk.
So why is today so important for hedge funds? With the marketing trending downward and little sign of recovery in the next year or two (at least) many people who invested millions are seeking a safe haven for their cash or even just the cash itself due to other losses. Today is the day those investors can pull money out. It's also likely that this free riding sector will be examined more closely in the not so distant future with the goal of bringing them inline with other tax rates. None of this could happen quickly enough. The hedge funds have added liquidity but it's safe to say now that this experiment in preferential tax rates and unregulated investment has not delivered what it promised. Everyone else in America is going to pay their share of this failure, so let them pay too.
Funds managers around the world said they are sitting on record levels of cash to meet an expected flood of "I want my money back" notices on Sept. 30 -- the end of another month of horrible industry performance and the deadline for most funds offering monthly and quarterly redemptions.
"This is not like flicking a light switch," said Timothy Mungovan, a partner who advises hedge funds at law firm Nixon Peabody LLP. "It is more like a bowling ball careening down an alley where we don't know if it will go down the gutter or be a strike and take out several big funds."
