Thanks to the upcoming presidential election, we have been flooded with campaign ads and promises from each candidate. So, I started to think about how the upcoming election will affect the financial services industry. With so much new regulation and legislation being put into place, can we even predict what will happen after November’s election?
The last few years have really opened my eyes to how much the financial services industry and Washington are connected. So, after reading some recent articles in The Hedge Fund Law Report, I learned that some firms take no chances when it comes to how Washington’s politics might affect their business. It was through this reading that I was introduced to the political intelligence industry, which appears to be growing by leaps and bounds. Its purpose is to gather information on pending legislation and government policy, and one of the major receivers of this service is, by no surprise, hedge funds.
As we have seen, decisions made in the capital city can alter the profitability of any industry in the US, so industries such as the hedge fund industry are taking this very seriously and hiring political intelligence firms to help conduct research and due diligence. They also help with investment ideas and strategies, which naturally leads anyone to wonder, could this be considered insider trading? Some in Washington see that possibility and are now forming legislation, called the Stop Trading on Congressional Knowledge Act or STOCK Act, which monitors these political intelligence firms. Among other things, the STOCK Act says “hedge funds and their employees who trade on information obtained from a political intelligence firm can be exposed to potential liability”.
So, does this mean hedge funds that use political intelligence firms will be monitored more closely by the government? And will the increased scrutiny be worth all the potential extra hassle in the end? All I know is that with or without these political intelligence firms, hedge funds will probably continue to be under more and more scrutiny.