Kathleen Casey is a quintessential Washingtonian.
||Kathleen Casey at
the SEC (Photo: Bloomberg)
Air Force dad. Law school at George Mason. Thirteen
years as a Senate staffer. Five years as a top Securities and
Exchange Commission official. And since her five year term as
an SEC commissioner ended in August 2011, Casey is now a
regulatory consultant at Patomak Global Partners, a fellow at
Georgetown, a member of the Library of Congress Trust Fund
Board and the Public Company Accounting Oversight Board
Advisory Council. A Republican, she's even taken a short term
role advising Mitt Romney's presidential campaign.
The hope now is that Casey can use her Washington
savvy to benefit hedge funds. The Alternative Investment
Management Association, one of two major industry lobbying
groups, appointed Casey as its chairman on September 20.
London-based AIMA opted for someone with deep regulatory
experience--Casey also did extensive work while at the SEC with
the G-20 Financial Stability Board and the International
Organization of Securities Commissions--instead of an industry
insider like Managed Funds Association chair Bill Goodell, the
chief operating officer of Maverick Capital.
Casey established herself as a hedge fund advocate
at the SEC, meeting numerous times with AIMA staff and members
to better understand the industry (as she did with many
interest groups). In June 2009, for example, she noted that the
financial crisis was "not a hedge fund driven event" and that
"hedge funds contribute to market liquidity, price efficiency,
risk distribution, and global market integration."
Absolute Return recently sat down
with Casey in New York to discuss her then-week old role.
AR: Where do you stand on global
regulation of the hedge fund industry?
Kathleen Casey: In
jurisdictions like the U.S., you already have new registration
and reporting requirements coming online, so we're focused on
implementation and ongoing compliance issues with respect to
reporting. It's relevant to what we see in Europe with the
Alternative Investment Fund Managers Directive, and other
jurisdictions, as well. The industry needs to get used to this
broader regulatory regime. I think OTC derivatives continues to
be another area where getting the rules right is very
important, and not just to market participants like asset
managers and hedge funds, but more broadly.
If you step up at the global level, which is also
relevant to some of the initiatives you see in the U.S. and
Europe, shadow banking is another area where the industry is
going to be very keen on helping policy makers and regulators
understand the role that hedge funds play in the market and as
much as possible inform their judgments on what is truly shadow
banking and the kinds of risks that they are seeking to
address. That is another area where AIMA will be quite keen on
trying to inform how regulators look at those issues and ensure
that hedge funds aren't unduly caught up in an overly broad
view. Especially since they are highly regulated and not
necessarily involved in the business of banking.
A lot of industry insiders would
look at the shadow banking debate and say this is
ridiculous--it seems so obvious that hedge funds shouldn't be
included and yet it's this big fight. What are the main
I don't think it's a fight. It's a very legitimate
concern when you look just at the sheer amount of regulatory
activity that has gone on during the past several years. One of
the lessons is that you really need to stay engaged. There's
always the risk that if not properly informed regulators could
take a broader view. There's not a fight. There's a broad
recognition that hedge funds by definition, in my view, don't
meet the notion and the risks posed by the concept of shadow
banking. That being said, AIMA needs to be very engaged in
helping policy makers and regulators understand what role hedge
funds do play and be responsive to their desire to understand
better, whether it's through monitoring or whether it's just
getting more information about the way that hedge funds operate
so that they can, as much as possible, ensure that you don't
have an overly wide net that might include hedge funds.
Speaking of AIFMD, some of the
draft proposals have been quite scary to American managers.
Where does the process stand and where do you hope to be
I know that AIMA has remained very engaged with
providing comment and input on the concerns that they have on
the AIFMD. As that process continues to proceed, the issues
have narrowed. We still intend to be very involved. I wouldn't
speak specifically on the issue, but I know its an area of
particular concern and interest in continuing to monitor what
the final directive will look like.
Shifting to Dodd-Frank, John
Paulson recently made some comments about manager
reporting being "gobbledygook." What are some areas that could
I think you're obviously going to have an
adjustment for many advisors or managers. For now, coming into
a more regulated environment, there will always be that kind of
knowledge sharing that goes on [laughs]. It will be an
adjustment. I think there's recognition of that on both sides.
I think communication is really important.
What will the JOBS Act practically
mean for hedge funds? Will it really change the under-the-radar
culture of the industry?
I think it remains to be seen. The regulators have
identified this as an area where they are going to be
particularly interested to see how folks address advertising
and solicitation. How much the hedge fund industry engages in
it remains to be seen. I know AIMA has also been very
supportive of the objectives of the JOBS Act, particularly with
respect to eliminating the solicitation ban. And that makes
sense, I think. Certainly when you look at the maturity of the
industry and the sophistication of investors and the
protections that are in place by virtue of that. And also the
fact that the industry is highly regulated. I think that's all
good. How that develops it will be interesting to see.
A criticism of the JOBS Act I've
never quite understood is about the new wave of frauds that
will target investors, even though the anti-fraud provisions
I completely agree with you.
What's your perspective on the
carried interest debate?
I would say that's an area where I wouldn't have a
comment at this point, other than obviously knowing that from
AIMA's perspective concerns have been raised.
Do you think the hedge fund
industry is unfairly singled out from other alternatives like
private equity and venture capital?
As the industry continues to grow and certainly as
you have a greater institutional investor base and a much more
regulated industry, I think that naturally those kinds of
perceptions should diminish. More generally, from a capital
markets perspective, I never looked at it that way or had that
perception just because of an understanding of how important
hedge funds are in capital markets. I think there's a great
appreciation for the role that they play.
What would you say to managers who
don't have the best view of regulators?
[Laughs] Who are they?
What would you tell managers so
that they would better appreciate the job of
I think regulators value the input they get in
terms of helping them more effectively achieve their regulatory
objectives and understanding what that means for the industry.
That kind of technical as well as policy input is really quite
important. So it's going to be a developing relationship. You
have an industry facing much greater regulatory oversight. The
spirit is one of really trying to make sure that regulators are
effective in their objectives. And that means working with the
industry to make sure that its more likely that they are going
to be successful. Whether its through reporting, like the ADV
in the U.S. for example, or just understanding how the regimes
work together and how that incents behavior. All of that is
really important to hear from the industry and it more likely
that regulators will be successful achieving their
Do hedge funds need to work on
their public image?
AIMA has been engaged with educational research
efforts. Two of the products just came out that AIMA did with
KPMG. One was on the trends in the industry as well as the
trends in institutionalization. So you have that as well as
this broader effort to speak more clearly to what the role of
hedge funds are the social and economic value that they offer.
Those kinds of products that AIMA has recently put out are
consistent with a lot of work they've done. It connects them
with their base. That educational element has always been in
AIMA's roots. As we continue to move forward, that kind of work
will continue to be an important priority.
What do you think of hedge fund
press coverage, for example around Simon Lack's book The Hedge Fund Mirage?
I know AIMA did offer up some counter perspective
than what was offered in that book in the spirit of really
trying to help people understand how you should look at the
industry. And to the degree they thought there were
methodological or factual errors, it was helpful that they were
able to offer their perspective on that and counter what they
thought were some of the book's weaknesses. More generally,
that's the kind of engagement that organizations like AIMA have
to have to try and be a voice that people can look to in
understanding more clearly the truths of how the industry
works, and it's not always that apparent. To the degree that
there are views or commentaries out there where you really
think it gets it wrong, organizations like AIMA can be helpful
in providing a counter view.
You've been working as an advisor
to the Romney campaign. Can you talk about the
No. It probably wouldn't be relevant or appropriate
to the hat I'm wearing.
Andrew Ross Sorkin of The New York Times recently criticized
former Minnesota governor Tim Pawlenty for
becoming CEO of the Financial Services Roundtable because of
the so-called revolving door between government officials and
lobbyists. What's your take on the issue?
I didn't see that article, but to the revolving
door issue I would just say that to the degree you seek
expertise in government, you want to be able to attract people
who understand the markets. You want to attract people who are
expert in those areas. It's not unnatural that you would have
people from the private sector to do that. To the degree that
they decided they want to commit themselves to public service
for whatever that period of time is, it's natural that
afterwards they would go back in some role to the private
sector. You have a variety of different laws in place to
address very legitimate concerns about conflicts. And, again,
they serve very important purposes. But I think it would be a
danger if you didn't have a situation where government could
attract the best and brightest and that you didn't get the
benefit of the kind of expertise and knowledge that you have
from people in the private sector. It's really important that
you do that. I don't know what is revolving in and out--I've
only been in. This is my first time out. So I don't know if