Hedge funds will benefit and the broader economy will suffer if new curbs on trading by U.S. banks are left unchanged, according to the head of SkyBridge Capital LLC.
The Volcker rule, enacted this year to curtail proprietary trading by U.S. banks, keeps rival traders out of his business, said Anthony Scaramucci, managing partner of SkyBridge Capital LLC, who spoke today at the Bloomberg Hedge Funds 2010 conference. Goldman Sachs Group Inc., JPMorgan Chase & Co and Bank of America Corp. have cut jobs in proprietary trading or shifted traders into other units to comply with the law.
A proposed rewrite by Republican lawmakers to allow banks back in “would be bad for hedge funds and bad for my firm. It would be better for society,” Scaramucci said. “Anytime you’re taking speculators out of a market, you’re widening spreads. When you widen spreads, you’re increasing the costs of transactions for normal citizens. When you increase the costs for normal citizens, it hurts the society.”
The Volcker rule, part of the financial industry overhaul approved by Congress in July, was designed to limit trading by bank holding companies for their own account. The law was passed at the urging of former Federal Reserve Chairman Paul Volcker to lessen the threat of another financial crisis.
“We have to embrace some level of regulation in our businesses,” Scaramucci said. “We have to accept a speed limit because there’s a lot of people through human nature who will hurt themselves in order to get short-term performance over another person. The American athlete did it with anabolic steroids. The American banker did it with leverage.”
SkyBridge Capital, which invests in hedge funds, had $7.2 billion under management as of Oct. 1, according to spokesman Victor Oviedo. Scaramucci wrote a book this year called “Goodbye Gordon Gekko - How To Find Your Fortune Without Losing Your Soul,” published by John Wiley & Sons Inc.
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