Goldman’s Cohn’s warning makes hedge funds furious

COMMENTS made by Goldman chief operating officer Gary Cohn in Davos this week have sparked fury among hedge fund investors, who form a large part of Goldman’s client base.

Cohn sounded a warning about banking regulation on Wednesday at the World Economic Forum, saying that over-regulation could push dangerous practices into “the shadow banking system”.

Although he did not explicitly point the finger at hedge funds, his remarks were widely interpreted to be targeting them. He claimed that the “unregulated sector” would experience a boom due to stringent new regulations imposed on banks and that risk “will move from the regulated, more transparent banking sector to a less regulated, more opaque sector”.

But a hedge fund industry source told City A.M.: “The idea that the hedge fund sector is unregulated is complete tosh. And the idea that we are all better-off if banks are handling risk is absurd because they are the ones that bankrupted themselves.”

“It’s much better to disperse risk among smaller players who are small enough to fail,” said the source.

But despite the framing of his remarks, Cohn is now the third senior banking executive to speak out against anti-banker measures recently, after Barclays' Bob Diamond said it was time for banks to stop saying sorry and JP Morgan's Jamie Dimon said that overly generalised criticism of bankers was “unfair”.