The revolving door and the hedge fund industry

July 5, 2010 | By Jim Kim

While the hedge fund industry (hedge fund news) has fared well in the on-going effort to reform the financial services industry, it remains a target for regulators and politicians. We'll likely see more attempts to tax carried interest as ordinary income at some point.

Understandably, the industry feels it needs more savvy on legislative and regulatory matters. To that end, it has hired some big name former regulators. According to Reuters, hedge fund star John Paulson (John Paulson news) in June hired former SEC chairman Harvey Pitt and former commissioner Roel Campos as outside directors at some of his funds. Earlier this year, Pitt and former SEC Commissioners Aulana Peters and Joseph Grundfest were hired by Israel Englander's Millennium Management hedge fund. Former SEC Chairman Arthur Levitt is also said to be doing consulting work for private equity firms and hedge funds.

This has raised some eyebrows. But it isn't quite the classic "revolving door," which usually involves regulators going to work for the companies they specifically regulated. That is basically against the law. You can't blame hedge funds for hiring the people that can help them get their way in Washington. At the same time, you do have to lament that some regulators seem bent on a big paycheck once they step down.

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