Hedge Funds and Obama Part II – What to Expect

Date: Wednesday, November 7, 2012
Author: Nigel Someck, ProHedge

The USA wakes up this morning to four more years of President Obama in the White House. It is no secret that Romney was favoured amongst the majority of Wall Street and the Hedge Fund community. What lies in store for Obama’s final term in office and how will it affect hedge funds?

During one of the presidential candidate debates, Romney shot off an astonishing statement regarding the much lamented Dodd-Frank act “I would repeal it (the Dodd-Frank Act) and replace it.” the kind of statement that would have instantly earned him the vast majority of hedge fund votes. That is all in the past now of course as Romney licks his wounds after a bruising election campaign and subsequent defeat. What will worry most hedge fund managers this morning is Obama’s response to Romney’s pledge: “Does anybody out there think that the big problem we had is that there was too much oversight and regulation of Wall Street?” Picture the entire US financial services industry screaming ‘YES!!’ at their television screens.

Obama part II, what to expect

Obama is a hard man to assess, since more often than not he is judged on his words rather than actions. “There’s been so much finger pointing. He’s made it seem bad to be successful and to be millionaires and billionaires” says Karl Wellner, CEO of Papamarkou Wellner Asset Management, speaking to CNN this week.  During the first term there was a lot of talk about clamping down on the accumulation of wealth, perhaps the second term will see him follow through on these threats.

The feeling was that Romney would take a more hands on approach to financial regulation whilst Obama in his second term is likely to give lose rope to regulators to do their work “Obama would give carte blanche to heavy-handed regulators and just say go for it,” according to Wellner. Perceptions of Romney were that he is a businessman and would approach the financial world in a pragmatic way, like a consultant. Wellner comments: “Romney is a consultant and looks at what is efficient.” Ironically, like Bush before him, Obama is more dogmatic in his approach; he governs with his heart, sometimes to the detriment of those on the opposing side of his views.

There is also the looming ‘fiscal cliff’ that is expected to kick in on January 1^st. Spending cuts and tax hikes may converge to dip the economy back into recession. There will now be a process of negotiation between Congress and the White House as they attempt to rebalance the budget and avoid a potential cliff.

Whatever lies in store, during the second term we expect to see more actions than words from the President which will ultimately decide how he is judged at the end of his final term as president. In the meantime hedge funds will proceed with caution and certainly expect no let-up in regulation and taxes for the next four years.