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New York Times – Several leading hedge fund managers told Congress on Thursday they support some new regulation of hedge funds and the complex derivative securities that are partly blamed for the global financial crisis.
But they advocated only the lightest supervision of their industry, and said they would be willing to disclose their secretive trading activities to regulators only with a guarantee the information would not be released to the public. One executive claimed that requiring hedge funds to publicly disclose their proprietary trading strategies would be like requiring Coca-Cola Co. to reveal to competitors its proprietary recipe for Coke.
"Proper regulation is critical, but the best regulation is created with an eye toward unleashing opportunities, not limiting possibilities," said Citadel Investment Group Chief Executive Officer Kenneth C. Griffin. "We must solve the serious issues we face but in a way that does not stifle the best innovative qualities of our financial markets."
New York Times Blogs – Turns out hedge funds will not have to publicly disclose their secret strategies after all, at least not any time soon.
The reprieve for the industry came late Wednesday. The Securities and Exchange Commission quietly said it would relent on an emergency order, first issued Sept. 19, that would have required hedge funds to publicly disclose vast amounts of detail on their short positions, which are the bets they make against individual stocks.
Hedge fund managers and their lobbyists in Washington immediately attacked the order, saying it amounted to making the Coca-Cola Company disclose its top-secret formula.
Many hedge funds would simply cease to operate, the argument went. Others would go to great lengths to avoid the rule, including by setting up offshore affiliates and conducting trades through complex swap agreements.
BusinessWeek – Not many stocks were left standing when the Dow Jones industrial average crashed by 504 points on Sept. 15—the worst drop since the September 11 terrorist attacks. One stock that did stand firmly was Coca-Cola, the world’s largest soft drink company. When the tsunami-like wave of selling was done on that frenzied day, Coca-Cola’s stock stood at 54.75, up from the previous session’s closing price of 54.50.
True, it was a razor-thin rise, but considering the devastation in the marketplace that day, just staying upright was a mighty accomplishment, as the financial giants lost some 20% to 94% of their value. Nonfinancials also got ravaged, including General Electric, which tumbled 8.04%, ExxonMobil 5.48%, Sprint Nextel 5.70%, Intel 3.97%, and Merck 3.25%.
For a while there, Coke seemed to have lost its fizz. From 2003 through 2006, its shares traversed a narrow range, meandering between 37 to 50. In 2007, the stock came back, trading up to a high of 65 by early January 2008. But then the stock got caught in the market’s subprime-mortgage-driven decline in July, which yanked Coke down to a 52-week low of 49.60. Since then, it’s eased back to the mid-50s.
Buffett’s Beverage
That’s because Wall Street appears to have rediscovered Coca-Cola. Of the 17 analysts who follow Coke, not one recommends selling the stock, and all but two tag the stock a buy. Two analysts rate it a hold. (It’s also reassuring that Coke’s largest stakeholder is Warren Buffett’s Berkshire Hathawa, which owns an 8.6% stake.)
