Washington Post – June 25, 2009 By Tomoeh Murakami Tse

NEW YORK, June 24 -- The greatest fear among hedge fund managers and executives, who have seen their industry shrink in the financial crisis, is neither the flight of wealthy investors nor ill-functioning markets but regulation, according to a survey to be released Wednesday.

Among respondents, 38 percent said that "onerous government regulation" was the biggest threat to the industry, reflecting their anxiety over Washington's heightened attention to hedge funds and other Wall Street firms involved in the financial crisis. Lack of willing investors was a distant second, with 16 percent. Other factors, such as a lack of access to capital and a lack of market transparency, received single-digit percentages.

While 43 percent said there is the "right amount" of regulation now, 37 percent said they favored more regulation, according to the survey, which was commissioned by RSM McGladrey, a financial services consultancy. Eighteen percent favored looser oversight. This was the first time the survey was conducted.

"Do I think there should be more regulation than there was a year ago? Yes. Do I fear it's going to be too much? Yes," Rob Topping of Topping Capital, a Chicago fund manager with about $110 million in assets under management, said in an interview. "What you don't want to do is run the risk of killing the entrepreneurial spirit that made this country great."

Other fund managers, however, said regulation was not a concern.

"The greatest threat is not from Washington. The greatest threat is from a malfunctioning economy," Leon Cooperman, co-founder of Omega Advisors, a $4 billion hedge fund, said in an interview.

Under an Obama administration plan for overhauling financial regulations, hedge funds whose managed assets exceed a "modest" threshold would have to register with the Securities and Exchange Commission. They would also be required to report information that regulators could use to assess risk to the financial system.

While trade groups representing hedge funds say they agree with the broad concepts, the industry is engaged in discussions with Washington over what type of information should be supplied and which funds would be subject to the requirements, officials said. The industry is also worried that regulators could deem particular hedge funds so large or so linked to the broader financial system that they would face additional capital requirements and reporting mandates.

The survey of 102 hedge fund managers and executives -- conducted from May 20 to June 4 and reporting a margin of error of 9.7 percent -- also asked them to rate the performance of regulatory agencies. The Federal Reserve and the Federal Deposit Insurance Corp. had the best reviews, both garnering 78 percent approval rates. The Treasury Department was next, with 61 percent approving of its job.

The Securities and Exchange Commission, under fire for its failure to prevent the implosion of Bear Stearns and Lehman Bothers as well as the multibillion-dollar Bernard Madoff fraud, fared the worst, receiving a 26 percent approval rating.